The S&P 500, also known as the Standard & Poor’s 500, is a stock market index that tracks the stocks of 500 large-cap U.S. companies. It is one of the most commonly followed equity indices and many consider it one of the best representations of the U.S. stock market. Google Finance provides a quick and easy way for investors to look up and track the performance of the S&P 500.
What is the S&P 500?
Standard & Poor’s (S&P) compiles the S&P 500, a stock market index. It includes 500 of the largest U.S. companies by market capitalization, representing about 80% of the total market capitalization of the U.S. stock market.
Here are some key things to know about the S&P 500:
- It is a market-cap-weighted index, meaning the larger the company, the more it impacts its performance.
- The 500 companies are from various industries like technology, healthcare, financials, consumer discretionary, etc.
- The index includes both growth and value stocks.
- Companies must meet market cap, liquidity, domicile, and public float criteria to be included.
- The index is rebalanced quarterly to account for corporate actions like mergers, spinoffs, or bankruptcies.
- S&P Dow Jones Indices is in charge of operating and maintaining it.
The S&P 500 is widely considered to be one of the best gauges of the U.S. equities market. As such, it is closely watched by stock market analysts and investors.
Why is the S&P 500 Important?
The S&P 500 is one of the most widely followed stock market indices for several reasons:
Benchmark for the overall market – The S&P 500 represents about 80% of the total U.S. equities market cap. So it serves as an important benchmark for the overall performance of the stock market.
Leading indicator – As it tracks large-cap stocks across diverse sectors, the S&P 500 can be a leading indicator of the general economy. The performance of its component stocks gives insight into the health of the economy.
Index Fund Popularity – The S&P 500 is the basis for many index mutual funds and ETFs. As of 2022, S&P 500 index funds accounted for close to $4.6 trillion in assets, making it one of the most invested in indices.
Options and Futures Trading – The S&P 500 index has active options and futures contracts associated with it, allowing traders to speculate on the index’s price.
Benchmark for Active Managers – Active fund managers are often benchmarked against the S&P 500. So outperforming the index is an important goal.
In summary, the ubiquity of the S&P 500 and its representation of the broader U.S. stock market make it a vital metric for investors to follow.
How is the S&P 500 Calculated?
The S&P 500 is a market-cap weighted index. The market capitalization, or market cap, is calculated by multiplying the stock price by the number of outstanding shares.
The market caps of each constituent determine their weight within the index. So the larger the company’s market cap, the more it impacts the index’s performance.
Here is the step-by-step process:
- Calculate market cap for each company: Stock Price x Shares Outstanding
- Add the market caps of each company to determine the total market cap for the index
- Divide each company’s market cap by the total market cap to determine weights
- Multiply each company’s weight by its price to determine the contribution to the index level
- Sum the weighted prices to calculate the index level
The market caps and stock prices change from day to day. So the S&P 500 index value moves up and down accordingly.
The S&P 500 is updated continuously during market trading hours with price data. But the constituent weights are only rebalanced on a quarterly basis.
What Stocks are Included in the S&P 500?
The S&P 500 includes 500 of the top U.S. stocks across 11 major sectors. However, the specific constituents change over time as companies get added and dropped.
Here is the sector breakdown as of January 2023:
- Information Technology – 26.5%
- Healthcare – 15.1%
- Financials – 11.3%
- Communication Services – 8.4%
- Consumer Discretionary – 10.9%
- Industrials – 7.7%
- Consumer Staples – 6.9%
- Energy – 4.1%
- Utilities – 2.9%
- Real Estate – 2.8%
- Materials – 2.5%
Some of the most heavily weighted stocks in the index include:
- Apple (AAPL)
- Microsoft (MSFT)
- Amazon (AMZN)
- Tesla (TSLA)
- Alphabet (GOOGL)
- Berkshire Hathaway (BRKB)
To be eligible for inclusion, companies must meet the following criteria:
- Be U.S. based with a primary listing on the NYSE, NASDAQ, or Cboe exchanges
- Have a market cap of at least $13.8 billion
- Be highly liquid with adequate trading volume
- Have a public float of at least 50% of outstanding shares
Meeting the criteria does not guarantee inclusion. The S&P Index Committee makes the final determination on additions and deletions.
How is the S&P 500 Different from the Dow Jones?
The Dow Jones Industrial Average (DJIA) is another widely followed U.S. stock market index. But there are some key differences between the DJIA and S&P 500:
- Number of constituents – The DJIA only tracks 30 large companies while the S&P 500 tracks 500.
- Weighting methodology – The DJIA uses a price-weighted methodology while the S&P 500 is market-cap weighted.
- Sector representation – Due to only having 30 stocks, the DJIA does not offer as broad of sector representation as the S&P 500.
- Rebalancing frequency – The DJIA changes components less frequently than the S&P 500.
- Historical performance – The S&P 500 and DJIA have offered comparable returns over the long run. But the S&P 500 is considered a more accurate benchmark for overall market performance.
So while both indices represent blue-chip U.S. stocks, the S&P 500 provides a much broader look at the total market compared to just the 30 companies in the DJIA.
How to Track the S&P 500 on Google Finance
Google Finance provides a quick, easy, and free way for investors to look up and track the S&P 500 index. Here are simple steps to find it:
- Go to Google Finance
- Type “S&P 500” into the search bar
- Click on the S&P 500 result
The S&P 500 overview page provides the current index level, daily performance, 52-week range, charts, related news, and more.
You can customize the interactive chart to show performance over various timeframes – 1 day, 5 days, 1 month, 6 months, 1 year, 5 years, or max.
Key data points displayed include:
- Open – The opening index level at the start of the current trading day
- High – The highest point the index reached during the day
- Low – The lowest point the index dropped to during the day
- Performance – The percentage change in the index so far for the day
- Volume – The number of shares traded for all stocks in the index
- Mkt cap – The total market capitalization of all 500 companies
So Google Finance offers a quick snapshot of key S&P 500 performance data. The interactive chart and customization make it easy to analyze price trends.
You can also add the S&P 500 index to your Google Finance portfolio to track it alongside your personal holdings. This provides greater context into how your investments are performing compared to the broader market.
Key Drivers of S&P 500 Performance
Many macroeconomic and market factors influence the overall performance of the S&P 500 index. The most impactful drivers include:
- Corporate Profits – As the S&P 500 tracks leading U.S. companies, their profit growth directly impacts stock prices and the index level. Rising corporate earnings typically drive gains.
- Economic Growth – The state of the overall U.S. economy, as measured by GDP growth, impacts corporate performance and investor sentiment. Faster economic growth fuels the index.
- Interest Rates – Low rates make stocks more attractive relative to fixed income. Rate hikes cool down the stock market.
- Inflation – Rising inflation typically causes slower economic growth and earnings declines. This weighs on the market and S&P 500 returns.
- Geopolitics – Major global events like wars, elections, trade policy shifts influence market psychology and appetite for equities.
- Investor Sentiment – Bullish sentiment indicates optimism and buying activity which lifts the index. Bearish sentiment has the opposite effect.
- S&P 500 Valuations – The index tends to perform better when valuations such as P/E ratios are lower and companies are seen as undervalued.
Understanding these macro drivers provides helpful context into the market forces that dictate S&P 500 performance.
Notable S&P 500 Milestones
Some key milestones in the history of the S&P 500 include:
- March 1957 – The index closes above 500 for the first time
- November 1972 – The S&P 500 closes above 100 for the first time
- August 1982 – The index closes above 150 for the first time
- March 1998 – The S&P 500 closes above 1,000 for the first time
- October 2006 – The index closes above 1,500 for the first time
- April 2007 – The S&P 500 reaches a record peak of 1,565 before the financial crisis
- March 2009 – The index falls to a trough of 676 amid the Great Recession
- February 2012 – The S&P 500 closes above 1,350 and reaches pre-financial crisis levels
- August 2020 – The index exceeds 3,500 for the first time ever
- January 2022 – The S&P 500 reaches an all-time high of 4,796
The S&P 500 has rewarded long-term investors with an average annual return of around 10% since 1957 despite multiple recessions and market declines.
Conclusion
In summary, the S&P 500 is one of the most important stock market benchmarks that investors follow to gauge the performance of the overall U.S. equities market. Google Finance offers an easy way to look up and track the index for free.
The S&P 500 represents 500 leading U.S. companies, covers 11 sectors, and accounts for 80% of the total market cap. It is weighted by market cap and follows a consistent methodology for additions, deletions, and rebalancing.
While the macroeconomy and investor sentiment heavily influence the S&P 500 in the short run, it has proven to be a solid long-term investment for those buying and holding a diversified basket of U.S. stocks.