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The Standards 500 Index

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The Standards & Poor 500 Index is a market-weighted average index comprised of the stock values of 500 widely held U.S. companies considered leaders in their industries. The index provides a broad view of the overall stock market and represents approximately 80% of the total market or $7.8 trillion. To be included in the S&P 500, companies need to be U.S. based with a market cap of at least $5.3 billion, have at least 50% of their shares outstanding, and be financially healthy with adequate liquidity (S&P Dow Jones Indices, 2015c). Calculating the S&P 500 Index first requires calculating the market capitalization of each company. This is done by multiplying each company’s outstanding share by its share price. Next, the market capitalization …show more content…

companies (Bullock & Platt, 2015). The thirty companies are selected specifically for their size and the frequency of their stock trades. The companies included in the Dow average are primarily manufacturers of industrial and consumer goods, with a smaller contingency representing financial services, information technology, and entertainment. Some of the largest companies represented in the Dow include Visa, IBM, Goldman Sach, 3M, and Boeing. Others include Chevron, United Technologies, Caterpillar, Johnson & Johnson, and McDonald’s (S&P Dow Jones Indices, …show more content…

The index includes only 30 blue-chip stocks, and index entry is tightly controlled. In contrast, the S&P 500 represents a much wider mix of companies with an average market cap of $38 billion. The Dow index value is calculated based on share price, which means companies with higher share prices exert greater influence over the Dow and can skew the index. The S&P 500 uses market capitalization and a weighted total, which produces less skewed results. Given the wider market representation by the S&P 500, it is not surprising that Financial Times reporters Nicole Bullock and Eric Platt (2015) regard the S&P 500 as “a more appropriate benchmark” of what is happening in the financial markets. Furthermore, as Bullock and Platt (2015) states, “The S&P 500 is Wall Street’s indicator. Main Street’s indicator is the

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