What is S&P 500 (Standard and Poor's 500)?

The S&P 500 (Standard and Poor’s 500) is one of the best internationally recognized stock market indexes. It is used to observe and measure the performance of the top 500 biggest firms in the US by market capitalization.

Market capitalization, or market cap, refers to the value of the combined stock shares of a corporation. The market cap of a company can be calculated by multiplying the stock price with the overall number of shares issued by the company. The S&P 500 keeps track of the stock market index by analyzing the risks and returns made by the featured companies.

The value of a company is calculated when its market cap is divided by the overall market capitalization. The large-cap stocks of the companies featured on the S&P 500 are valued at around $9.8 billion, making it a benchmark for the stock market index data. 

The S&P 500 index is float-adjusted, meaning that only the shares available to investors are used to calculate the market capitalization, and any shares owned by governments or other organizations are excluded.

The value is directly affected by any fluctuation in the share prices. However, the companies at the bottom of the ladder do not hold the same weight on the overall value as the top-rated organizations. 

The S&P 500 is considered volatile due to the frequent fluctuations in prices. Therefore it may be difficult for those with less market experience to employ the index for market predictions. However, financial experts can use prior data trends to create prospective outlooks of the interest and return rates in the markets.

Companies that aim to be featured in the S&P 500 index must meet certain criteria:

• The company must be registered for public trading in the US;
• The market cap must be valued at at least $9.8 billion;
• The public float must consist of at least 10% of all outstanding shares;
• The company must show good income performance in the most recent quarter;
• The company must prove it has achieved positive earnings in the past four quarters;
• The company must demonstrate the payability of any short-term debts.

All companies listed in the S&P 500 must maintain operations on public markets. The companies are obligated to publicly share their quarterly and annual performance data.

Furthermore, they must be tax-compliant, transparent, and provide the stockholders with complete financial clarity. The S&P 500 companies must file with the Securities and Exchange Commission (SEC) regularly.

The S&P 500 index features some of the best-known global brands. At the time of writing, the largest companies featured on the index by weight are Apple, Microsoft, Amazon, Alphabet (Google), and Tesla. However, the index is not limited to the Big Tech companies and also features other industries, such as healthcare, entertainment, and oil & gas.

Traders should purchase exchange-traded funds if they wish to invest in the S&P 500 index. Some of the most popular index funds used to track the S&P 500 performance are the Fidelity 500 Index Fund (FXAIX) and Vanguard 500 Index Investor Shares (VFINX).