What should we know about S&P 500 ?
The S&P 500 is considered a broad measure of the U.S. stock market and is a widely followed stock market index that tracks the performance of 500 publicly traded companies.
What is the S&P 500?
The S&P 500 is considered a broad measure of the U.S. stock market and is a widely followed stock market index that tracks the performance of 500 publicly traded companies.
Market capitalization is used to weight each company’s influence in the index calculation. Market capitalization is the number of shares of a company’s stock outstanding times the company’s stock price.
The S&P 500 Index has generated impressive returns – $1.00 invested in 1970 would have returned nearly $192.00 in 2022, compared to $1.00 invested in 1970. Since its inception in 1957, the S&P 500 has returned an average of 11.9% per year.
Why Companies choose S&P500?
Unlike some other indexes where companies are selected based on set rules, companies are selected by committee.
Even so, they must meet certain eligibility criteria, the most important of which is market capitalization, which must be greater than or equal to $12.7 billion.
Other criteria include liquidity, location, public float, sector, financial profitability, length of public trading and representation of industries in the U.S. economy.
27.8% of the index’s market capitalization is represented by the nine largest companies in the index.
What are the factors that drive the S&P 500?
The S&P 500 is driven by many different factors. Primarily, it is the aggregate performance of its constituent companies as reported in their quarterly and annual earnings reports.
Macroeconomic data from the US and around the world also contribute because they affect investor sentiment, which, if positive, drives the gains.
Interest rate levels set by Federal Reserve officials also affect S&P 500 by affecting borrowing costs, on which many companies rely.
Therefore, along with other metrics that influence the Fed’s decisions, inflation can be a major driver.
How can I trade the S&P 500?
Trading the S&P 500 is available in a number of ways. Traders can use Contracts for Difference (CFDs) to place bets on the direction of the price at most retail brokers and spread betting platforms.
In addition, you can buy into index funds, mutual funds and exchange traded funds (ETFs) that track the price of the S&P 500. State Street Corporation’s SPY is the most liquid ETF.
The Chicago Mercantile Exchange provides index futures and the Chicago Board of Options provides options, ETF’s, inverse ETF’s and leveraged ETF’s.
