Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools:

The Standard and Poor’s (S&P) 500 index is a commonly used stock market index. The index tracks the stock price performance of 500 companies with a market capitalization of over $10 billion.  

The parent company of the S&P 500 index is S&P Global, Inc. (formerly Standard & Poor’s). The company is well-known for supplying financial data, credit ratings for investments, and various equity indexes.  

This article provides an overview of the S&P 500. When you finish reading this article you’ll have an understanding of:

The S&P 500 index originated in 1957. Its purpose was to provide investors with a stock market index that tracked the value of 500 large corporations that were listed on the New York Stock Exchange (the NASDAQ exchange didn’t start trading until 1971).  

Throughout its history, the index has held up as a barometer of economic activity. For example, in the 1970s, the index moved steadily lower. This coincided with the stagflation (I.e. stagnant growth coupled with high inflation) that marked that period.  

Another example of the index’s ability to accurately depict economic activity occurred during the 2008 financial crisis and subsequent Great Recession. The S&P 500 fell approximately 46%. However, by March 2013, it had recovered most of its losses.  

A similar scenario played out in a much more abbreviated fashion during the Covid-19 pandemic. In March 2020, the S&P swiftly dropped approximately 20%. However, by the end of the year the index had already recovered that loss and reached multiple all-time highs in 2021. 

Although the S&P 500 is consistently listed alongside the NYSE and NASDAQ as a barometer of stock performance, a key distinction of the S&P 500 is that it’s not an exchange. Rather, it’s an index of stocks that the selection committee designs to reflect every sector of the U.S. economy.  

An index is simply a group of common assets (e.g. stocks) that track the performance of a particular market segment. In the case of the S&P 500 the index tracks the performance of 500 corporations that are publicly traded on either the New York Stock Exchange (NYSE) or the NASDAQ.  

Institutional investors rely on the S&P 500 Index (SPX) as a leading indicator for tracking changes in the economy. It is also a recognized way for investors to get exposure to a broad cross-section of the U.S. economy. The index was created in 1957 and ever since has shown to consistently outperform other asset classes.  

As of August 2022, the combined market cap of all the companies in the S&P 500 index totals over $36 trillion. The total market cap is arrived at by simply totaling the market cap of every individual component of the index.  

The S&P 500 index covers all major sectors of U.S. companies, it is the benchmark that most equity managers are measured against. Although every company in the S&P 500 is headquartered in the United States, the companies are international companies with revenue coming in from all over the world. This adds to the diversification of the index.  

However, unlike other stock indexes that base their selection of composite companies exclusively on a defined set of rules, the S&P index is actively managed, meaning that the committee has some discretion in the stocks they select. This allows the committee to respond, as needed, to market events. 

To qualify for inclusion in the S&P 500’s index, companies must meet the following criteria. This list is current as of March 2022: 

Many of the companies in the index have little problem meeting these criteria. However, others struggle and the S&P Dow Jones Indices, the committee that decides which companies are in or out of the index, are not bashful about removing underperformers.  

The S&P Dow Jones Indices rebalances the index quarterly. This takes place on the third Friday in March, June, September, and December. The rebalancing factors in the stock’s weighting (I.e. its market cap) and other factors the committee considers to be relevant.  

This is also the time when companies are added and removed from the index. While this doesn’t occur too often, the average turnover of the index has been about 25 stocks per year with the highest number of stocks changing in one year being 60.  

However, there are times when a stock is added or delisted within a quarter. Some reasons for this include: 

When a company is delisted, the committee will typically add a company at or near the time the company is removed.  

As you would expect, the S&P 500 has components from every market sector. Within each sector there are multiple industries and within those industries there are even more specific sub-sectors. The following list is accurate as of August 2022.  

As we pointed out above, the S&P 500 is commonly viewed as a measure of market performance. However, the weighting is suggesting where investor dollars are going. That’s why, as of August 2022, a company like Apple is one of the top components of the S&P 500. Nearly every mutual fund and exchange-traded fund (ETF) with exposure to technology will include AAPL stock as one of its holdings. 

However, the tech sector does not always outperform the market. For example, in late 2021 and the first half of 2022, energy stocks outperformed technology stocks. Not surprisingly, the S&P dipped into bear market territory. However, the energy components of the index performed quite well.  

Likewise, the sectors of the index can be affected by monetary policy. For example, rising interest rates are a good sign for financials. However, falling interest rates may be better for growth stocks as the cost of borrowing eases. 

How to Invest in the S&P 500 Index 

As noted above the S&P 500 is an index not an exchange. As such, there are several ways to invest in funds that approximate the performance of the index. 

A common strategy is to own shares in an exchange-traded fund (ETF). Such as the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) commonly referred to as the SPY. As mentioned above, investors will frequently choose to invest in the SPY because the S&P 500 is widely seen as a reliable benchmark that captures the depth and breadth of the economy.  

What Are the Risks of Investing in S&P 500 Stocks? 

Because the S&P 500 index is a barometer of the overall economy, the stocks that make up the index carry the same risk as many other stocks. And since many investors want to select their own stocks, their choice of stocks matters a great deal.  

For example, if an investor owns Apple (NASDAQ:AAPL) which is currently the S&P 500 Index’s largest component, they are likely to have better performance than if they own Meta Platforms (NASDAQ:META) which was one of the top 10 components of the index as of March 31, 2022.  

That’s why ETFs are so popular. By owning a basket of S&P 500 stocks much of the risk is smoothed out. As a result, investors can expect a fund such as the SPY to closely approximate the performance of the index itself.

Solar is one of the fastest growing sectors in the stock market. And the recent clean energy bill that passed through the U.S. Congress as part of the Inflation Reduction Act is likely to keep that growth going. By some estimates, solar installation may triple over the next five years.

But the bullish outlook for this sector is about more than the funding the industry will receive. The Biden administration announced in June that it was suspending tariffs on solar panel components from four countries. This will be a key step in helping to untangle the supply chain for the necessary components.

This two-pronged strategy will be key to the sector achieving the Biden administration's goal of having 45% of the nation's energy supply coming from solar by 2050. That's up from the 4% the sector supplied in 2020.  

In this presentation, we're highlighting seven solar stocks that stand to benefit as solar becomes an increasingly cost-effective option for consumers and for businesses.

View the "7 Solar Stocks Leading the Clean Energy Boom".

Complete the form below to receive the latest headlines and analysts' recommendations for your stocks with our free daily email newsletter:

ETF portfolio manager, Dave Gilreath offers a perspective on “dividend achievers” and why these deserve a role in your portfolio

Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools:

View the latest news, buy/sell ratings, SEC filings and insider transactions for your stocks. Compare your portfolio performance to leading indices and get personalized stock ideas based on your portfolio.

Get daily stock ideas from top-performing Wall Street analysts. Get short term trading ideas from the MarketBeat Idea Engine. View which stocks are hot on social media with MarketBeat's trending stocks report.

Identify stocks that meet your criteria using seven unique stock screeners. See what's happening in the market right now with MarketBeat's real-time news feed. Export data to Excel for your own analysis.

MarketBeat All Access subscribers can access stock screeners, the Idea Engine, data export tools, research reports, and other premium tools.

Looking for new stock ideas? Want to see which stocks are moving? View our full suite of financial calendars and market data tables, all for free.

Receive a free world-class investing education from MarketBeat. Learn about financial terms, types of investments, trading strategies and more.

MarketBeat empowers individual investors to make better trading decisions by providing real-time financial data and objective market analysis. Whether you’re looking for analyst ratings, corporate buybacks, dividends, earnings, economic reports, financials, insider trades, IPOs, SEC filings or stock splits, MarketBeat has the objective information you need to analyze any stock. Learn more about MarketBeat.

Twitter Facebook StockTwits Financial Juice YouTube

© American Consumer News, LLC dba MarketBeat® 2010-2022. All rights reserved. 326 E 8th St #105, Sioux Falls, SD 57103 | contact@marketbeat.com | (844) 978-6257 MarketBeat does not provide personalized financial advice and does not issue recommendations or offers to buy stock or sell any security. Our Accessibility Statement | Terms of Service | Privacy Policy | Do Not Sell My Information | RSS Feeds

© 2022 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see Barchart's disclaimer.