What the S&P 500 Tells You About America's Health (2024)

The S&P 500 is astock marketindex thattracks thestocks of 500large-capU.S. companies.It represents the stock market's performance byreporting the risks and returns of the biggest companies.Investors use it as the benchmark of the overall market, to which all other investments are compared.

S&P stands for Standard and Poor, the names of the two founding financial companies. It was officially introducedon March 4, 1957 by Standard & Poor. McGraw-Hill acquired it in 1966. The S&P Dow Jones Indices owns it as of 2022 and that's a joint venture between S&P Global (formerly) McGraw Hill Financial, CME Group, and News Corp, the owner of Dow Jones.

The S&P 500 had an average 10-year annual return of 13.9% as of Jan. 7, 2022.

Key Takeaways

Investors usually look at the S&P 500 to assess how the overall stock market is doing. This index is considered a leading U.S. economic indicator.
It tracks 500 publicly traded, large-cap U.S. companies. These businesses must meet specific criteria to be a part of the S&P 500. The mix of industries that make up the S&P 500 list often reflects the economic makeup of the United States.
Investors can purchase shares of stocks listed on the S&P 500 or invest in index funds that track the S&P 500.

How the S&P 500 Works

The S&P 500 tracks themarket capitalizationof the companies in its index. Market capis the total value of allshares of stockthat a company has issued. It's calculated by multiplying the number of shares issued by thestock price. Acompany that has a market cap of$100 billion receives 10 timesthe representation as a company whose market cap is $10 billion. The total market cap of the S&P 500 was $34 trillion as of January 2022.

Note

The index is weighted by afloat-adjusted market cap. It only measures the shares available to the public. It does not count those held by control groups, other companies, or by government agencies.

Acommittee selectseach of the index's500 corporations based on theirliquidity, size, and industry.It rebalances the index quarterly, in March, June, September, and December.

A company must be in the United States and have an unadjustedmarket cap of at least $13.1billion to qualify for the index.At least 50% of the corporation's stock must be available to the public. Itsstock pricemust be at least $1 per share.It must file a 10-K annual report. At least 50% of its fixed assets and revenues must be in the United States. Finally, it must have at least four consecutive quarters of positive earnings.

The stockcan't be listed on pink sheets or traded over the counter. It must be listedon theNew York Stock Exchange,Investors Exchange,Nasdaq,orBATS Global Markets.

As of January 7, 2022, thetenlargest companies, with a weighted market cap, in the S&P 500 were:

Apple Inc. (AAPL)
Microsoft Corp. (MSFT)
Amazon.com Inc. (AMZN)
Alphabet Inc. A (GOOGL)
Tesla, Inc (TSLA)
Alphabet Inc. C (GOOG)
Meta Platforms, Inc. Class A (FB)
Nvidia Corp. (NVDA)
Berkshire Hathaway B (BRK.B)
Unitedhealth Group Inc. (UNH)

Note

The makeup of theS&P 500 industries reflects that of the economy.

S&P 500 vs. Other Stock Market Indexes

The S&P 500 has morelarge-capstocks than theDow Jones Industrial Average. The Dow tracks the share price of 30 companies thatbest represent their industries. Its market capitalization accounts for almost one quarter of the U.S. stock market. The Dow is the most quotedmarket indicatorin the world.

The S&P 500 has fewertechnology-related stocksthan theNasdaq. As of June 2021, 55% of Nasdaq allocations were in information technology compared to 28% for the S&P 500.

All thesestock indexestend to move together despite their differences. You can still understand how well the stock market is generally doing if you focus on only one. You don't have to follow all three.

Milestones of the S&P 500

The following table shows various milestone events of the S&P 500, including both highs and lows, and other memorable moments.

June 4, 1968	100.38	First time above 100
Oct. 19, 1987	224.84	Black Monday
March 24, 1995	500.97	First close above 500
Feb. 2, 1998	1,001.27	First close above 1,000
Oct. 9, 2007	1,565.15	Highest close before financial crisis
Oct. 13, 2008	1,003.35	Largest % gain of 11.6%
Aug. 26, 2014	2,000.02	First close above 2,000
Sept. 21, 2018	2,929.67	New record high
July 12, 2019	3,013.77	First close above 3,000
March 12, 2020	2,480.64	Largest % decline since Black Monday, entered bear market
March 23, 2020	2,237.40	Stock crash low
August 18, 2020	3,389.78	New record high end of bear market
August 28, 2020	3,508.01	Closes above 3,500
April 1, 2021	4,019.87	Closes above 4,000
Oct. 13, 2021	4,519.63	Closes above 4,500

How to Use the S&P 500 to Make Money

You can't invest in the S&P, but you can mimic its performance with anindex fund. You could also buy shares of stocks that are in the S&P 500.

Note

You can weigh the stocks in your portfolio according to their market cap, as the S&P does.

You can use the S&P 500 as aleading economic indicatorof how well the U.S. economy is doing. Investors tend to buy stocks when they're confident in the economy.

Since the S&P 500 only measures U.S. stocks, monitoring foreign markets may help provide a global view, such asemerging marketslikeChinaand India. You could also consider holding a small percentage of your investments incommodities, such as gold, which might hold their value longer when stock prices decline.

Besides following the S&P 500, following thebond market might help with your investment goals. Standard & Poor's also gives bonds credit ratings. Although bond prices tend to move in the opposite direction of stock prices, that's not always the case. Both bond and stock prices can be volatile at times.

There are many differenttypes of bonds. They includeTreasury bonds,corporate bonds, andmunicipal bonds. Bonds provide some of theliquiditythat keeps the U.S. economy lubricated. Bonds can also impact mortgageinterest rates.

Frequently Asked Questions (FAQs)

How do you invest in the S&P 500?

You can't invest directly in the S&P 500, but you can invest in specific companies that are included in its index. You can also invest in S&P 500 index funds that are designed to closely follow the performance of the S&P 500.

What companies are in the S&P 500?

Companies must have an unadjusted market cap of at least $13.1 billion in order to qualify for inclusion in the S&P 500. They must also meet specific criteria in terms of liquidity and profitability.

What does the S&P 500 measure?

The S&P 500 tracks the value of the 500 stocks in its index at any given time. These stocks represent 500 of the largest companies in the U.S. based on market capitalization.