The Standard and Poor’s (“S&P”) index tracks 500 stocks.  It is based on the market capitalization of 500 large publicly-traded US companies.  The companies included in the index are selected so that they are representative of the industries in the U.S. economy. In order to be added to the index, a company must, in addition to other factors, be a U.S. company with a market capitalization of at least US$ 4.0 billion and a public float of at least 50%.  The value of the S&P 500 index is the basis for several index mutual funds and exchange-traded funds (“ETFs”).

The S&P 500 is widely considered to be the best representation of the performance of the U.S. equities market and more S&P500generally for the economy as a whole. The S&P 500 is also considered a leading economic indicator, as it tends to decline prior to a recessionary period, or increase prior to an expansionary period.  That is, the S&P 500 often indicates where the economy is heading over the next 6 months.

Knopman Notes
Index funds and passive portfolio managers often look to the S&P 500 as a benchmark in an effort to generate consistent market returns (not exceeding or under-performing the market as a whole).  Other attributes of an indexed approach include:

  1. Low management costs: the investment selections are made by tracking S&P 500 rather than by hired investment advisers,
  2. Low portfolio turnover: resulting in lower transaction costs and higher tax efficiency

Registered reps whose clients seek these goals must be able to identify indexing against the S&P 500 as one way to achieve them.

Relevant Exams:
Series 7, Series 24, Series 63, Series 65, Series 66, Series 79

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Written by Dave Meshkov
Dave's mission (and job: Managing Director of Course Design) is to make FINRA exam training engaging, approachable, and dare he even say, enjoyable. Having trained and coached over ten thousand students to exam success he knows how to present complex subjects in memorable and understandable ways. Prior to joining Knopman Marks in 2011, Dave practiced bankruptcy law at Weil, Gotshal & Manages and served as a law clerk in a the Southern District of New York Bankruptcy Court working on the General Motors and Lehman Brothers bankruptcies. Building on his legal expertise and training allows him to keep all our courses updated with the latest legislative and rule-making changes. Dave currently trains for the Securities Industry Essentials (SIE) exam and the Top-Off Series 6, 7, 24, 57, 63, 65, 66, 79, 86, 87, and 99 exams. He also delivers executive one-on-one training and shares his passion for learning outside of work as a ski instructor and yoga teacher. Dave graduated magna cum laude from Fordham Law School, and cum laude with a BA from the University of Pennsylvania.