S&P 500, the world's most closely watched stock index

The S&P 500 is the world's most widely followed index of the 500 largest market capitalizations in the United States. By investing in US bonds in 1928, you would have enjoyed a comfortable return of 1.8% per year. However, this performance would have been 6.4% if you had invested in the new Standard & Poor's stock index.

Published under the name of S&P 500 since 1957, the American index has in fact had a gross performance of 9.5% per year, for almost 90 years! Needless to say, hardly any active fund manages to outperform the S&P 500, which has captivated traders around the world for decades.  Here is a comprehensive summary of what you need to know about the S&P 500 to trade the index and its stocks.  

What is the S&P 500 Index ?

The S&P 500, or Standard and Poor's Composite Index 500, is the main index of the United States stock market. It includes the 500 largest companies listed on the NYSE or Nasdaq, and its capitalization covers nearly 80% of the total U.S. stock market.  Owned by Standard & Poor's - one of the four largest financial rating companies in the United States - the S&P 500 has been recognised over time as the most representative US index, in particular because of the large number of companies it covers. Its direct competitor, the Dow Jones, includes only 30 companies. Created on March 4, 1957, the S&P 500 is now considered a mirror of the world economy, since it does not only take into account companies founded in the United States, but all those listed on the American market.   

Good to know : the S&P 500 index is worth 25,000 billion dollars, which means that it represents half of the world's market capitalization, for only 1% of the companies listed in the world !  

S&P 500 Index Formula

The S&P 500 is updated every 15 seconds and is traded continuously from 3:30 p.m. to 10:00 p.m. EST. The index is weighted according to the market capitalization of the companies in its composition. This is different from the Nasdaq and the Dow Jones, which are weighted according to the stock values of the companies they include - which inevitably gives more weight to stocks with high prices.

The formula used to calculate a company's weighting in the S&P 500 is as follows Company weighting = Value of the company in the market / Total value of all companies in the market   

Composition of the S&P 500 Index

To be included in the S&P 500, a company must meet the following criteria :

  • have a market capitalization of at least $5 billion
  • have a monthly trading volume of at least 250,000 shares

The S&P 500 Index consists of 500 stocks, the largest of which are :

  • Apple Inc.
  • Microsoft Corporation
  • Amazon.com Inc.
  • Facebook Inc. Class A
  • JP Morgan Chase & Co.
  • Berkshire Hathaway Inc. Class B
  • Johnson & Johnson
  • Alphabet Inc. Class C (Google)
  • Alphabet Inc. Class A (Google)
  • Exxon Mobil Corporation
  • JP Morgan Chase & Co 
  • Bank of America Corporation
  • Wells Fargo & Company
  • Intel Corporation
  • AT&T Inc.
  • Visa Inc. Class A
  • Cisco Systems Inc.
  • Chevron Corporation
  • UnitedHealth Group Incorporated
  • Pfizer Inc.
  • The Home Depot Inc.

How to trade the S&P 500 Index

Like any stock market index, the S&P 500 is only a calculation formula and cannot be traded directly. Therefore, to speculate on this index, investors must use financial derivatives. CFDs, with the S&P 500 as their underlying, can allow traders to bet on the rise or fall of the US index. Futures, including the SP and ES contracts, both of which are listed on a futures exchange, can also be used to trade the S&P 500. In addition, the S&P 500 is suitable for a wide range of investor profiles, as it can be used for both short-term strategies (day trading, scalping) and long-term strategies (swing trading).     

The S&P 500 is the flagship index of the U.S. stock market, highlighting the economic performance of the 500 largest-capitalization companies listed in the United States. It is the most representative index, not only of the US market but also of global economic health, and is followed by traders around the world.