Standard & Poor's 500 Index (thing)

An indicator of US stock market performance, the Standard & Poor's 500 Index tracks the prices of 500 of the world's largest stocks (though foreign public corporations make up a miniscule part of the index). It is generally assumed that the index tracks the 500 largest companies (in terms of market capitalization), but this is not the case. The companies underlying the index are chosen by the Standard & Poor's corporation in an attempt to create a basket of stocks that is representative of the broad domestic market.

While the Dow Jones Industrial Average is probably the most quoted and widely known US stock market indicator, the S & P 500 is the one most used by investment professionals. It has many advantages over the Dow, which is only composed of only 30 stocks. Among these are the fact that the companies in the S & P 500 are weighted by market capitalization, not simply averaged like those in the Dow. This helps market watchers get a better feel of what happened to the actual money in the market over time, rather than the individual fortunes of a handful of companies. The S & P 500 is also broader in terms of the companies it represents--those in the Dow are huge companies as a rule, while most companies in the S & P 500 (and the market) are much smaller.

Standard & Poor's started its first index in 1923, but this was not expanded to 500 companies until March 4, 1957.