The Standard and Poor 500, often referred to as the S&P 500, or just “the S&P,” is an almost 100 year-old stock index that is often cited as the most accurate barometer of the performance of the American stock market, even more so than the Dow Jones Industrial Average. The Dow, you see, only takes into account the daily price of 30 stocks, but the S&P’s tallies the share prices of 500 companies. Bigger is better with the S&P, and the 500 that make up the index are all huge companies with a market capitalization of at least $6.1 billion, and thus represent about 80% of the entire market capitalization of the US stock market.
S&P inclusion is not an appointment for life; when companies falter, they’re booted off the index in favor of higher valued companies. In computing the daily S&P level, stocks are weighted according to their market capitalizations, so a $70 billion company is weighted ten times as heavily as $7 billion one. The S&P 500 index is currently owned and operated by Dow Jones Indices, a joint venture between News Corp (Dow Jones’ parent company), McGraw Hill Financial, and CME Group. The Dow folks don’t compile the S&P for their health; it makes the lion’s share of its revenue through licensing agreements with ETFs and index funds, who will track the S&P as a basis for their investment products.