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S&P 500 Index (SPX)


Based on market-value-weighted method, Standard & Poor's 500 Index is commonly referred to as the “S&P 500” and represents US stocks of large and medium companies. When we talk about ‘the market’—a group of shares traded as a unit in one security on a stock exchange—we mean the S&P 500.

More About S&P 500 Index (SPX)

Continue reading to learn more about:

What is S&P 500 Index (SPX)?
Fact about S&P 500 Index (SPX)
How S&P 500 Index (SPX) Work
Pros and Cons of S&P 500 Index (SPX)


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What is S&P 500 Index (SPX)?


The Standard & Poor's 500 index is the ultimate U.S. stock market performance benchmark. It's used to measure the performance of large-scale portfolios because it represents a diverse cross-section of U.S. stocks, including large-, mid-, and small-cap companies in several industries, as well as real estate investment trusts. It includes big brands like Apple, Exxon Mobil, Target, Walmart, Coca-Cola and Visa, but also other household names like Delta Airlines and McDonalds.


 

Fact about S&P 500 Index (SPX)


The S&P 500, often called “The Market”, is an index that represents roughly 80 percent of the investable U.S. equity market. 60 percent of companies are from consumer discretionary sectors, 15 percent are financials, and 10 percent are industrials. The remaining 25 percent are utilities and telecom stocks.

 

How S&P 500 Index (SPX) Work


  • S&P 500 Index (SPX) is a market-cap weighted index that tracks the stock market performance of 500 large companies in the US. The S&P 500 Index (SPX) is thought to be more representative of the stock market than the Dow Jones Industrial Average (DJIA), since it represents a larger sample of publicly listed companies and covers a broader range of industries.
  • More importantly, it's also used as the benchmark for many US mutual funds, whose shares are priced based on their performance in relation to this index.
  • The index initially included 500 of the largest companies in leading industries of the time, such as transportation, utilities, communication, and manufacturing.
  • Today, it includes all publicly traded companies in the US. Since many US companies are multinational, they are listed on US stock exchanges such as NASDAQ as well as their domestic exchanges such as NYSE

Pros

Having this index in your market shows that you are not only confident that the markets will recover, but to a point where the index itself makes enough profit to pay dividends. This is preferred over the S&P 500 Stocks , which is riskier and more volatile then the Indices themselves.

Cons

The biggest cons of these indices are that the S&P 500 and the Dow Jones Industrial Average are price-weighted. Price-weighted means that companies with higher share prices will make up a larger portion of the index. This takes away from some of the underlying purpose of indexes in general – to represent a true sampling of all available companies. Moreover, as large cap companies gain weight over time, small cap investing becomes less appealing.