The Standard and Poor 500 index tracks 500 major U.S. companies to provide an indicator of American economic and stock market performance, states Investopedia. Rather than using stock prices, the S&P is calculated using company market capitalization: The stock price multiplied by the number of shares.Continue Reading
Investors follow the S&P 500 to judge the performance of the American stock market, and many investors considered it more representative than the Dow Jones Industrial Average, states Investopedia. Nevertheless the Dow Jones remains the most quoted market indicator in the world, according to About.com. The Dow Jones Industrial Average tracks only 30 companies, giving it a much less comprehensive market overview compared to the 500 companies tracked by the S&P 500.
The S&P 500 is calculated using a formula that tracks only the market capitalization of publicly accessible company shares, explains Investopedia. This is especially useful for investors who want an indicator of actual daily trading. Companies must meet stringent rules to be included in the S&P 500, and the index managers have bumped major companies, such as U.S. Steel, for not meeting strict market capitalization numbers. Finance.Yahoo.com charts a full history of S&P 500 numbers back to 1950.
Some companies offer investment funds tied to the S&P 500, including the popular Vanguard 500 Index Fund and Standard & Poor's Depository Receipt Exchange Traded Fund, notes Investopedia. Investors use these funds to tie their money to the overall fortunes of the American stock market.Learn more about Investing