S&P 500

From Wikipedia, the free encyclopedia The S&P 500 is a stock market index containing the stocks of 500 American Large-Cap corporations. The index is owned and maintained by Standard & Poor's, a division of McGraw-Hill. All of the stocks in the index trade on the two largest US stock markets, the New York Stock Exchange and Nasdaq. The Dow Jones Industrial Average and the S&P 500 are the most widely watched indexes of large-cap US stocks. The S&P 500 is often quoted using the symbol SPX or INX, and may be prefixed with a caret (^) or with a dollar sign ($). Many index funds and exchange-traded funds track the performance of the S&P 500 by holding the same stocks as the index, in the same proportions, and thus attempt to match its performance (before fees and expenses). Partly because of this, a company which has its stock added to the list may see a boost in its stock price as the managers of the mutual funds must purchase that company's stock in order to match the funds' composition to that of the S&P 500 index. Additionally, the S&P 500 index is often used as a baseline level of performance against which mutual funds and other asset managers' performance is measured.

Linear graph of the S&P 500 index from 1949 to March 2007

Logarithmic graph of the S&P 500 index from 1950 to January 2008

Logarithmic graph of the S&P 500 index with simple trend lines

The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 largecap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock market exchanges: the New York Stock Exchange and theNASDAQ.[citation needed] The index focus is U.S.-based companies although there are a few companies with headquarters in and/or incorporated in other countries.[1] After the Dow Jones Industrial Average[citation needed], the S&P 500 is one of the most commonly followed equity indices, is considered a bellwether for the American economy, and is included in the Index of Leading Indicators. Many mutual funds, exchange-traded funds, and other funds such as pension funds, are designed to track the performance of the S&P 500 index. Hundreds of billions of US dollars have been invested in this fashion. The index is the best known of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill. S&P 500 refers not only to the index, but also to the 500 companies that have their common stock included in the index. The ticker symbol for the S&P 500 index varies. Some examples of the symbol are ^GSPC[2],.INX[3], and $SPX[4]. The stocks included in the S&P 500 index are also part of the broader S&P 1500 and S&P Global 1200 stock market indices.
Contents
[hide]

1 History 2 Selection 3 Components 4 Versions 5 Weighting

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5.1 Index maintenance 5.2 Update frequency

6 Investing 7 Market statistics

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7.1 Records (a) 7.2 Total annual returns (b)

8 See also 9 References 10 External links

[edit]History This section needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (March 2011)
Standard & Poor's introduced its first stock index in 1923. Before 1957, its primary daily stock market index was the "S&P 90", a value-weighted index based on 90 stocks. Standard & Poor's also published a weekly index of 423 companies. The S&P 500 index in its present form began on March 4, 1957. Thanks to the computer technology emerging at the time, this index could be calculated and disseminated in real time. The S&P 500 is widely employed as a measure of the general level of stock prices, as it includes both growth stocks and the generally less volatile value stocks. The index reached an all-time intraday high of 1,552.87 in trading on March 24, 2000, during the dot-com bubble, and then lost approximately 50% of its value in a two-year bear market, spiking below 800 points in July 2002 and reaching a low of 768.63 intraday on October 10, 2002 during the stock market downturn of 2002. The S&P 500 remained below its year 2000 all-time high somewhat longer than the popular Dow Jones Industrial Average and the more comprehensive Wilshire 5000. However, on May 30, 2007, the S&P 500 closed at 1,530.23 to set its first all-time closing high in more than seven years. The highest point reached was 1,565.15 on October 9, 2007. In mid-2007, difficulties stemming from subprime mortgage lending began spreading to the wider financial sector, resulting in the second bear market of the 21st century. The resulting crisis became acute in September 2008, ushering in a period of unusual volatility, encompassing record 100-point moves in both directions and reaching the highest levels since 1929.[5] On November 20, 2008, the index closed at 752.44, its lowest close since early 1997.[6] A modest recovery the following day still left the index down 45.5% for the year. This yearto-date loss was the greatest since 1931, when the broad market declined more than 50%;[7] the total losses that ushered in the Great Depressionexceeded 80% over a three-year period. The market continued to decline between late 2008 and early 2009 surrounding the events involving the financial crisis of 2008, reaching a nearly 13-year closing low at 676.53 on March 9. Subsequently, the index has recovered sharply to close at 1,206.07 on December 1, 2010, up over 78% from the low but still down by more than 23% from the 2007 high;

this respite has been alternately characterized as heralding a return to economic growth, or a significant counter-trend bear market rally. On April 29, 2011, the S&P 500 closed at 1,363.61, its highest close since June 5, 2008.

[edit]Selection
The components of the S&P 500 are selected by committee. This is similar to the Dow 30, but different from others such as the Russell 1000, which are strictly rules-based. The index does include a handful (12 as of October 14, 2011) of non-U.S. companies. This group includes both formerly U.S. companies that have reincorporated outside the United States, as well as firms that have never been incorporated in the United States. The committee selects the companies in the S&P 500 so they are representative of the industries in the United States economy. In addition, companies that do not trade publicly (such as those that are privately or mutually held) and stocks that do not have sufficient liquidity are not in the index. For example, Berkshire Hathaway has a market capitalization larger than nearly all members of the S&P 500, but its extremely high stock price (over $100,000 for its higher-priced Class A shares as of January 2011[8]) makes it very difficult to trade and so the committee excluded Berkshire from the index for many years. However, S&P ultimately put Berkshire's lowerpriced Class B shares into the index, replacing Burlington Northern Santa Fe Corporation, which Berkshire acquired. This followed Berkshire's decision to split the Class B shares 50-to-1, which made those shares worth 11500 of an A share.[9] By contrast, the Fortune 500 attempts to list the 500 largest public companies in the United States by gross revenue, regardless of whether their stocks trade or their liquidity, without adjustment for industry representation, and excluding companies incorporated outside the United States.

[edit]Components
Main article: List of S&P 500 companies

[edit]Versions
The "S&P 500" generally quoted is a price return index; there are also "total return" and "net total return" versions of the index. These versions differ in how dividends are accounted for. The price return version does not account for dividends; it only captures the changes in the prices of the index components. The total return version reflects the effects of dividend reinvestment. Finally, the net total return version reflects the effects of dividend reinvestment after the deduction of withholding tax.[10][11]

[edit]Weighting This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (March 2011)

The index has traditionally been market-value weighted; that is, movements in the prices of stocks with higher market capitalizations (theshare price times the number of shares outstanding) have a greater effect on the index than companies with smaller market caps. The index is now float weighted. That is, Standard & Poor's now calculates the market caps relevant to the index using only the number of shares (called "float") available for public trading. This transition was made in two steps, the first on March 18, 2005 and the second on September 16, 2005.

[edit]Index

maintenance

In order to keep the S&P 500 Index comparable across time, the index needs to take into account corporate actions such as stock splits, share issuance, dividends and restructuring events (such as merger or spinoffs). Additionally, in order to keep the Index reflective of American stocks, the constituent stocks need to be changed from time to time. To prevent the value of the Index from changing merely as a result of corporate financial actions, all such actions affecting the market value of the Index require a Divisor adjustment. Also, when a company is dropped and replaced by another with a different market capitalization, the divisor needs to be adjusted in such a way that the value of the S&P 500 Index remains constant. All Divisor adjustments are made after the close of trading and after the calculation of the closing value of the S&P 500 Index.

Type of Action Divisor Adjustment Stock Split (e.g. 2x1) No Share Issuance Yes Share Repurchase Yes Special Cash Dividend Yes Company Change Yes Rights offering Yes Spinoffs Yes Mergers Yes [edit]Update

frequency

The index is updated every 15 seconds during trading sessions.

[edit]Investing
Many index funds and exchange-traded funds attempt to replicate (before fees and expenses) the performance of the S&P 500 by holding the same stocks as the index, in the same proportions. Many other mutual funds are benchmarked to the S&P 500. Consequently, a company whose stock is added to the list of S&P 500 stocks may see its stock price rise, as the managers of index funds normally choose to purchase that company's stock in order to continue tracking the S&P 500 index. Several mutual fund managers also provide index funds that

track the S&P 500, the first of which was The Vanguard Group's Vanguard 500 in 1976.[12] Many retirement plans offer such funds. For example, the Thrift Savings Plan's C Fund tracks the total return S&P 500 index. In addition to investing in a mutual fund indexed to the S&P 500, investors may also purchase shares of an exchange-traded fund (ETF) which represents ownership in a portfolio of the equity securities that comprise the Standard & Poor's 500 Index. One of these ETF's is called theStandard & Poor's Depositary Receipts; NYSE: SPY, originating from a chain of ETFs called the SPDRs, pronounced "spiders", and is issued by SSgA State Street Global Advisors. Typical volume for the SPY SPDR averages between 300-400 million shares per day; the highest of any US stock traded on any exchange. On October 10, 2008, trading volume for the SPY SPDR surpassed 871 million shares; with a closing price of $88.50, the monetary value of traded shares which changed hands exceeded an astounding 77 billion dollars for the day.[13] BlackRock offers the iShares S&P 500NYSE: IVV, which is similar to the SPDRs, but is structured differently. Both the SPDRs and the iShares have a management expense ratio of under 0.1% a year; making them an efficient proxy for the underlying index, while achieving a performance close to the S&P 500 (minus fees and expenses). Through RydexShares, fund manager Rydex also offers an ETF, the S&P Equal Weight NYSE: RSP, which provides equal exposure to all the companies in the S&P 500. In addition, Rydex offers other related S&P 500 index ETFs such as the 2x NYSE: RSU, which attempts to match the daily performance of the S&P 500 by 200% and the Inverse 2x NYSE: RSW, which attempts to match the inverse daily performance by 200%. More heavily traded ProShares issued by ProFunds offer Inverse Performance NYSE: SH for a bearish strategy on the index, Inverse 2x Performance NYSE: SDS, and 2x Performance NYSE: SSO. For additional leverage, ProFunds also offers 3x Performance NYSE: UPRO, which attempts to match the daily performance of the S&P 500 by 300% as well as Inverse 3x PerformanceNYSE: SPXU, which attempts to match the inverse daily performance of the S&P 500 by 300%. In the derivatives market, the Chicago Mercantile Exchange (CME) offers futures contracts that track the index and trade on the exchange floor in an open outcry auction, or on CME's Globex platform, and are the exchange's most popular product. Additionally, the Chicago Board Options Exchange (CBOE) offers options on the S&P 500 as well as S&P 500 ETFs, inverse ETFs and leveraged ETFs.

[edit]Market [edit]Records Milestone

statistics
(a)
Closing Level Date [edit]Total

annual returns (b)

100

100.38

June 4, 1968

200

201.41

November 21, 1985

300

301.16

March 23, 1987

400

404.84

December 26, 1991

500

500.97

March 24, 1995

600

600.07

November 17, 1995

700

701.46

October 4, 1996

800

802.77

February 12, 1997

900

904.03

July 2, 1997

1,000

1,001.27

February 2, 1998

1,100

1,105.65

March 24, 1998

1,200

1,202.84

December 21, 1998

1,300

1,307.26

March 15, 1999

1,400

1,403.28

July 9, 1999

1,500

1,500.64

March 22, 2000

Highest close

1,565.15

October 9, 2007

Highest intraday level 1,576.09 edit]Total

October 11, 2007

annual returns (b)

$1.00 Investment Gives 5 Year Annualized Return (g/i)=(1+ar)^5 10 Year Annualized Return (g/i)=(1+ar)^10 15 Year Annualized Return (g/i)=(1+ar)^15

Year

Annual Return

1988

16.61%

$1.17

1989

31.69%

$1.54

1990

3.10%

$1.49

1991

30.47%

$1.94

1992

7.62%

$2.09

15.89%

1993

10.08%

$2.30

14.55%

1994

1.32%

$2.33

8.70%

1995

37.58%

$3.21

16.59%

1996

22.96%

$3.94

15.22%

1997

33.36%

$5.26

20.27%

18.05%

1998

28.58%

$6.76

24.06%

19.21%

1999

21.04%

$8.18

28.56%

18.21%

2000

9.10%

$7.44

18.33%

17.46%

2001

11.89%

$6.55

10.70%

12.94%

2002

22.10%

$5.10

0.59%

9.34%

11.47%

2003

28.69%

$6.57

0.57%

11.07%

12.19%

2004

10.88%

$7.28

2.30%

12.07%

10.91%

2005

4.91%

$7.64

0.54%

9.07%

11.51%

2006

15.79%

$8.85

6.19%

8.42%

10.65%

2007

5.49%

$9.33

12.83%

5.91%

10.48%

2008

37.00%

$5.88

2.19%

1.38%

6.46%

2009

26.46%

$7.26

0.06%

1.19%

7.87%

2010

15.06%

$8.35

1.80%

1.16%

6.58%

High

37.58%

28.56%

19.21%

12.12%

Low

37.00%

2.30%

1.38%

6.46%

CAGR

8.80%

Median

10.88%

10.92%

(a) These are the closing milestones of the price return S&P 500 in 100-point increments, along with the all-time highs.

(b) Total returns including reinvested dividends, in percent. In other words, these are the changes in the total return version of the index.

How is the value of the S&P 500 calculated?

The S&P 500 is a U.S. market index that gives investors an idea of the overall movement in the U.S. equity market. The value of the S&P 500 constantly changes based on the movement of 500 underlying stocks. The index is computed by weighted average market capitalization. The first step in this methodology is to compute the market capitalization of each component in the index. This is done by taking the number of outstanding shares of each company and multiplying that number by the company's current share price, or market value. For example, if Apple Computer has roughly 830 million shares outstanding and its current market price is $53.55, the market capitalization for the company is $44.45 billion (830 million x $53.55). Next, the market capitalizations for all 500 component stocks are summed to obtain the total market capitalization of the S&P 500, as illustrated in the table below. This market capitalization number will fluctuate as the underlying share prices and outstanding share numbers change.

In order to understand how the underlying stocks affect the index, the market weight (index weight) needs to be calculated. This is done by dividing the market capitalization of a company on the index by the total market capitalization of the index. For example, if Exxon Mobil's market cap is $367.05 billion and the S&P 500 market cap is $10.64 trillion, this gives Exxon a market weight of roughly 3.45% ($367.05 billion / $10.64 trillion). The larger the market weight of a company, the more impact each 1% change will have on the index. For example, if Exxon Mobil were to rise by 20% while all other companies remained unchanged, the S&P 500 would increase in value by 0.6899% (3.45% x 20%). If a similar situation were to happen to The New York Times, it would cause a much smaller, 0.0076% change to the index because of the company's smaller market weight.

Performance Data
(as of 17-Oct-2011 )
DailyAnnualized

Index Name

Adjusted Market Cap ($Million)

Performance Index Level 1 Day MTD QTD YTD

TOTAL RETURNS

S&P 500 (TR)

N/A

2,051.54

-1.93%

6.25%

6.25%

-2.97%

PRICE RETURNS

S&P 500

10,941,740.70

1,200.86

-1.94%

6.14%

6.14%

-4.51%

PRICE RETURNS BY SECTOR

Energy

1,325,160.70

489.74

-1.69%

10.6%

10.6%

-3.36%

Materials

382,691.33

204.14

-3.1%

10.62%

10.62%

-14.8%

Industrials

1,131,474.08

270.09

-2.69%

6.92%

6.92%

-10.3%

Cons Disc

1,183,750.67

299.64

-1.92%

8.75%

8.75%

1.39%

Cons Staples

1,244,737.02

315.53

-.92%

2.87%

2.87%

3.94%

Health Care

1,265,786.08

374.04

-1.69%

1.72%

1.72%

2.54%

Financials

1,445,499.95

164.22

-3.34%

3.25%

3.25%

-23.54%

Info Tech

2,208,928.31

414.40

-1.77%

9.57%

9.57%

2.44%

Telecom Svc

342,489.84

123.43

-.72%

1.16%

1.16%

-4.12%

Index Name

Adjusted Market Cap ($Million)

Performance Index Level 1 Day MTD QTD YTD

Utilities

411,222.72

171.87

-.26%

.65%

.65%

7.87%

Index Level Performance

(as of 17-Oct-2011) Download data

Index Characteristics
(as of 17-Oct-2011)

Number of Constituents Adjusted Market Cap ($ Billion) Constituent Mkt. Cap(Adjusted $ Billion) - Average - Largest - Smallest - Median % Weight Largest Constituent Top 10 Holdings(% Market Cap Share)

500 10,941.74

21.88 389.37 .79 10.16 3.56% 20.44%

Sector Breakdown
(as of 17-Oct-2011)

Top 10 Constituents by Market Cap

(as of 17-Oct-2011)

Constituent Apple Inc. Exxon Mobil Corp Intl Business Machines Corp Microsoft Corp Chevron Corp Procter & Gamble Johnson & Johnson General Electric Co AT&T Inc Coca-Cola Co

Symbol AAPL XOM IBM MSFT CVX PG JNJ GE T KO

GICS Sector Information Technology Energy Information Technology Information Technology Energy Consumer Staples Health Care Industrials Telecommunication Services Consumer Staples

Price ($) 419.99 77.47 186.59 26.98 98.61 64.26 63.79 16.23 29.02 67

Historical S&P Performance

Composition of the S&P 500 Index

S&P 500 sector break-down[1]

The S&P 500 index is not made up of the 500 largest corporations in the U.S., since other factors such as liquidity of the stock and industry grouping are also considered in selecting members for the index.

The criteria for being added to the index are as follows: Must be a "U.S. company". This is determined by looking at location of company's operations, its corporate structure, its accounting structure and its exchange listing. Must have minimum $5 billionmarket capitalization. The minimum is reviewed occasionally to ensure that it takes in to account market conditions. Must have a minimum public float of 50%, which means that at least half of the company's share must be publicly tradable. Must be financially viable. Companies are expected to have at least four consecutive quarters of positive as-reported earnings

Must be operating companies. Closed-end funds, holding companies, partnerships, investment vehicles and royalty trusts are not eligible while Real Estate Investment Trusts (REITs) and business development companies (BDCs) are eligible for inclusion to the index.

Should have adequate liquidity and moderate price per share. The ratio of annual dollar value traded to market capitalization for the company should be 0.30 or greater. Very low or extremely high priced shares are also considered to be illiquid.

The index must remain reflective of the various sectors in the U.S. economy. This signifies that even if a company has all the qualifying characteristics, it may not be selected if the sector it operates in is already accounted for in the index.

It should be noted that these criteria are applicable to companies that are being added to the S&P 500. Since the index committee attempts to minimize unnecessary turnover in index membership, existing companies do not have to diligently maintain these conditions to remain in the index. However, companies that substantially violate one or more of these criteria are removed from the index and replaced by a new company. As a result, on a year-to-year basis, the composition of the index only changes slightly. As of December 31 2009, the largest constituents of the were :
[2]

Adjusted Market Cap ($ billions) Exxon Mobil 323.7 Microsoft 235.5 Apple 189.9 Johnson and Johnson 177.7 Procter & Gamble 177.1 IBM 172.0 AT&T 165.4 JPMorgan Chase & Co. 164.2 General Electric 161.1 Chevron 154.5

Company

Index Weight 3.26% 2.37% 1.91% 1.79% 1.78% 1.73% 1.67% 1.65% 1.62% 1.56%