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Finance Dictionary and Glossary of Investment Terms
Standard & Poor's 500. A basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value, and its performance is thought to be representative of the stock market as a whole. The S&P 500 index was created in 1957, although it has been extrapolated backwards to several decades earlier for performance comparison purposes. This index provides a broad snapshot of the overall U.S. equity market; in fact, over 70% of all U.S. equity is tracked by the S&P 500. The index selects its companies based upon their market size, liquidity, and sector. Most of the companies in the index are solid mid cap or large cap corporations. Like the Nasdaq Composite, the S&P 500 is a market-weighted index. Most experts consider the S&P 500 one of the best benchmarks available to judge overall U.S. market performance.
A widely followed benchmark of stock market performance, the S&P 500 includes 400 industrial firms, 40 financial stocks, 40 utilities and 20 transportation stocks. All the firms are large. The S&P 500 is also the basis of a good deal of index investing. Inclusion in the index usually causes a stock to rise.