S&P 500
Quick Definition
A market-capitalization-weighted index tracking 500 of the largest U.S. publicly traded companies, widely considered the best single gauge of the American stock market.
Key Takeaways
- The S&P 500 tracks 500 large-cap U.S. companies, covering ~80% of market cap.
- It is market-cap weighted and the most widely followed stock market index.
- Historical average annual return is approximately 10% including dividends.
What Is S&P 500?
The Standard & Poor's 500 Index (S&P 500) is a stock market index tracking 500 of the largest publicly traded companies in the United States, representing approximately 80% of total U.S. equity market capitalization. Maintained by S&P Dow Jones Indices, it is widely regarded as the single best gauge of the U.S. stock market and economy. The index is market-cap weighted, meaning larger companies like Apple, Microsoft, and Nvidia have a greater influence on its performance. Companies must meet specific criteria for inclusion: U.S. domicile, market cap above $18 billion, positive earnings in the most recent quarter and over the prior four quarters, and adequate liquidity. The S&P 500 has delivered an average annual return of approximately 10% historically (including dividends). It serves as the benchmark for trillions of dollars in index funds and ETFs (notably SPY and VOO), and is the most commonly referenced index by media, analysts, and investors worldwide.
S&P 500 Example
- 1The S&P 500 has delivered an average annual total return of approximately 10% over the past century.
- 2Warren Buffett recommends most investors simply buy an S&P 500 index fund and hold it for the long term.
Related Terms
Market Index
A statistical measure tracking the performance of a group of stocks representing a market or sector.
Dow Jones Industrial Average (DJIA)
A price-weighted index of 30 large U.S. blue-chip stocks, one of the oldest and most-watched market benchmarks.
NASDAQ
The National Association of Securities Dealers Automated Quotations — the second-largest stock exchange globally, known for its concentration of technology and growth companies.
Russell 2000
A stock market index tracking 2,000 small-cap U.S. companies, widely used as a benchmark for small-cap performance.
Large-Cap
Companies with a market capitalization typically above $10 billion, considered stable blue-chip investments.
Stock
A security representing ownership in a corporation, entitling the holder to a share of profits and voting rights.
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