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💼intro to business review

S&P

Written by the Fiveable Content Team • Last updated September 2025
Written by the Fiveable Content Team • Last updated September 2025

Definition

S&P, short for Standard & Poor's, is a financial services company known for its stock market indices, particularly the S&P 500, which tracks the performance of 500 large publicly traded companies in the U.S. This index serves as a benchmark for the overall health of the U.S. economy and is widely used by investors to gauge market trends. S&P also provides credit ratings, research, and analytics that influence investment decisions and market dynamics.

5 Must Know Facts For Your Next Test

  1. The S&P 500 is considered one of the best representations of the U.S. stock market due to its diverse range of sectors and companies included in the index.
  2. S&P uses a float-adjusted market capitalization methodology to calculate the index, meaning only shares available for public trading are considered.
  3. The S&P Dow Jones Indices, which includes the S&P 500, is a joint venture between S&P Global and CME Group, expanding its influence on global markets.
  4. Changes to the S&P 500 are made periodically, with companies added or removed based on criteria like market cap, liquidity, and industry representation.
  5. Investors often use S&P indices as benchmarks to compare the performance of individual investments against broader market trends.

Review Questions

  • How does the S&P 500 serve as a benchmark for investors in assessing market performance?
    • The S&P 500 acts as a benchmark for investors because it includes 500 large companies from various sectors of the U.S. economy. By tracking these companies' performance, investors can get an overall sense of how well the stock market is doing. Additionally, many funds and investment strategies aim to match or outperform the S&P 500, making it a key reference point for measuring investment success.
  • Discuss the significance of market capitalization in determining which companies are included in the S&P 500.
    • Market capitalization plays a crucial role in determining which companies are part of the S&P 500. Only companies with a significant float-adjusted market cap qualify for inclusion, ensuring that the index reflects larger, more stable businesses. This method helps maintain the index's reliability as an indicator of economic health since it focuses on companies that have substantial influence on market trends and investor sentiment.
  • Evaluate how changes in the S&P 500 can impact broader economic conditions and investor behavior.
    • Changes in the S&P 500 can have significant repercussions for broader economic conditions and investor behavior. When the index rises, it often reflects investor confidence and can lead to increased spending and investment, bolstering economic growth. Conversely, declines in the S&P may signal economic downturns, leading to decreased consumer spending and investment as investors become more cautious. This relationship highlights how closely tied investor sentiment is to perceived economic stability as represented by this key index.