The S&P 500 index is one of the most closely watched indices in the world, viewed by many investors as the best performance indicator for US large-cap stocks.
It represents the share price performance of the largest public-listed companies in the US, though in technical terms its constituents are not necessarily the largest 500 at any point in time.
The index accounts for around 80% of the market cap of the US equity market.
What is S&P index?
S&P, formerly known as Standard Statistics Bureau, launched its first equity index in 1923. At first, the index was calculated on a weekly basis, and was composed of 233 US firms. Three years later, Standard Statistics introduced daily pricing, with an index comprised of 90 companies.
The name Standard & Poor's (S&P) came about in 1941 through the merger of Standard Statistics with Poor´s Publishing. In 1957, S&P´s daily index of 90 companies was expanded to 500, marking the inception of the all-important S&P 500 index. At this point, S&P´s weekly index was discontinued.
Today, there are thousands of S&P branded indices, many of which track the share price performance of overseas stocks.
Nevertheless, the S&P 500 remains the most widely followed index of all, as the preferred gauge for large-cap stocks listed in the world´s biggest economy.
In 2012, S&P Global, CME Group and News Corp formed a joint venture known as S&P Dow Jones Indices. While the S&P branded indices, including the S&P 500 itself, are now owned by S&P Dow Jones Indices, S&P Global is the majority owner of the combined entity.
Other well-known S&P indices include the S&P MidCap 400, the S&P SmallCap 600, and the S&P Composite 1500. This latter incorporates all the stocks in the S&P 500, 400 and 600.
During its first decade, the S&P 500 made reasonable gains as companies continued to benefit from the economic boom that followed World War II. However, the period from 1969 to 1981 was a difficult one for investors against sluggish growth and high inflation.
Propelled by the dot-com boom, the S&P 500 reached an all-time high of 1,527 in March 2000. The subsequent sell-off saw the index plunge to around 800 by October 2002, a peak-to-trough fall of 48%.
The index had climbed to a new peak of 1,561 by October 2007, just prior to the beginning of the global financial crisis.
A collapsing US sub-prime mortgage market and the global financial meltdown that followed saw the index hit a low of 683 by March 2009, well below the earlier trough of 2002.
Ultra-low interest rates and quantitative easing from major central banks, a policy response that was initially led by the US Federal Reserve, saw the S&P 500 rise to an all-time high of 2453 by June 19, 2017.
The S&P had thus climbed by around 260% from its low some eight years earlier.
S&P 500 volatility
The volatility of the S&P 500 is broadly in line with other high profile large-cap equity indices across the world. For instance, the S&P´s annualised volatility over five years is 9.64% compared with 10.1% for the FTSE 100.