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jueves, 17 de septiembre de 2015

The S&P 500 Index

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Corporate profits vs S&P 500

The Standard & Poor's 500 index also known as S&P 500 is one of the major US stock indexes. The S&P 500 is considered the most representative index of the actual market situation.

The index is based on the market capitalization of 500 large companies with shares traded on the NYSE or NASDAQ stock exchanges. The components of the S&P 500 index and their weighting are determined by S&P Dow Jones Indices. It differs from other indices of financial markets in the United States, such as the Dow Jones Industrial Average and the Nasdaq Composite index, in the diversity of the items that comprise it and its weighting methodology. It is one of the most followed stock indexes, and many people consider the S&P 500 as the most representative of the stocks markets in United States and the trendsetter of the American economy. The National Bureau of Economic Research has ranked the common shares as an important indicator of business cycles.

History of the S&P 500 

The origins of the S & P 500 dates back to 1923, when Standard & Poor's introduced an index covering 233 companies. The index, as it is known today, was formulated in 1957 to be extended to include the 500 largest US companies.

This stock index comprises the 500 largest US companies and is weighted according to the market capitalization of each of the companies. This index expresses better the real situation of the stock market and the bond market making it more sensitive than the Dow Jones Industrial Average and the Nasdaq 100.

How the components of the S&P 500 are selected?

The companies that comprise the S & P 500 are selected by a committee. This is similar to the procedure used by the Dow Jones Industrial Average, but different from what happens in others indices such as the Russell 1000, which are based strictly on rules. When considering the eligibility of a new company to the index, the committee examines the merits of the company using eight primary criteria: 
  1. Market capitalization
  2. Liquidity
  3. Address
  4. Floatin capital
  5. Industry classification
  6. Financial viability
  7. Period during which has been listed on the exchange
  8. Periodo during which can be traded on the stock exchange
The committee selects companies for the S&P 500 so as to be representative of the industries operating in the US economy. To be added to the index, a company must meet the following requirements of liquidity and size:

  • The market capitalization must be equal to or greater than 4 billion US dollars
  • The ratio of annual dollar amount negotiated with respect to the adjusted market capitalization must be greater than 1.0
  • The volume of shares negotiated monthly must be at least 250,000 shares in each of the six months prior to the date of assessment.
The shares must be offered either publicly on the NYSE (NYSE Arca and NYSE Amex) or the NASDAQ (NASDAQ Global Select Market, NASDAQ Select Market or the NASDAQ Capital Market). As a general rule can not be part of the index any stock or unit of the following types of business ventures societies: OTC bulletin board issues, closed-end funds, ETFs, ETNs, royalty trusts, tracking stocks, preferred stocks, unit trusts, equity warrants, convertible bonds, investment trusts, ADRs, ADSs and IT MLP units.

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