The performance of this basket of stocks is used to gauge the health of the overall American stock market. It is also widely used as a benchmark for investors to measure their own stock portfolios against. For instance, The Motley Fool's newsletters compare the performances of their portfolios against the performance of the S&P 500 when saying the newsletters have either beaten or lost to "the market." (Mostly beaten, of course; meaning the percentage gain of the Fool portfolio has been larger than the S&P 500's, or its percentage loss has been smaller.)
Some consider the S&P 500 a better representation of the market than the Dow Jones Industrial Average because the S&P contains 500 stocks compared to the Dow's 30.
Standard and Poor's introduced the index we now know as the S&P 500 in 1923. At the time it covered 233 companies. This index was expanded by Standard and Poor's in 1957 to 500 companies.
It is a market-cap weighted index of American companies that today includes leading companies in leading industries, although not necessarily the largest companies. The index is maintained by the S&P Index Committee. ExxonMobil is the company with the largest share of the index -- 5.17% today (2/23/09). Because it is weighted by the companies' market caps, the larger companies have a larger impact on how the index does.
Standard and Poor's today does investment ratings, research, and advice. It also maintains many other indexes used as benchmarks and tracked by index funds.
David Gardner Explains
- Standard and Poor's
- Wilshire 5000
- Dow Jones Industrial Average
- Russell 2000
- S&P 500 Dividend Aristocrats