S&P 500 Index Trading Strategies – What is it? (S&P 500 and Traders) – Quantified Strategies For Traders And Investors

Last Updated on June 21, 2022

One of the most popular stock market indexes in the world, the S&P 500 index is considered the face of the US stock market. But what is it?

The S&P 500 index is a market-cap-weighted index of 500 leading publicly traded companies in the US. It is often regarded as a barometer of the overall U.S. stock market’s performance and an indicator of how large corporations are performing. At the end of the article we provide you with numerous S&P 500 strategies that can be employed on the ETF with the ticker code SPY or the @ES futures contract.

Table of contents:

What is the S&P 500 index?

A registered trademark of the joint venture S&P Dow Jones Indices, the S&P 500 index is a market-cap-weighted stock index of 500 leading publicly traded companies in the US.

It is not an exact list of the top 500 U.S. stocks by market cap since other criteria are also used in creating the index. Each listed company doesn’t simply represent 1/500th of the index, as big stocks such as Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) have a greater impact on the index than relatively smaller ones like Macy’s (NYSE: M) and Harley-Davidson (NYSE: HOG).

The index is often regarded as a barometer of the overall U.S. stock market’s performance and an indicator of how large corporations are performing.

What companies and stocks are included in the S&P 500 index?

As of the time of writing, June 10, 2022, the top 5 components of the S&P 500 index and their Market Caps and Index Weightings are as follows:

Apple Inc. (AAPL): The iPhone maker has a Market Cap of $2.707 trillion and an Index Weighting of 7.1%.

Microsoft Corp. (MSFT): The popular PC giant has a Market Cap of $2.311 trillion and an Index Weighting of 6.0%.

Amazon.com, Inc. ( AMZN): The e-commerce giant has a Market Cap of $1.427 trillion and its Index Weighting is 3.7%.

Tesla, Inc. (TSLA): Tesla’s Market Cap is $902.1 billion, and its Index Weighting is 2.4%.

Alphabet Inc. Class A (GOOGL): Alphabet is the parent company of search-engine giant Google. Its publicly traded shares are split into Class A and Class C shares. The Class A shares have a Market Cap of $836.5 billion and have an Index Weighting of 2.2%.

When was the S&P 500 index created?

The S&P 500 index was created in 1957, but its history dates back to 1923 when the Standard & Poor’s Composite Index was launched.

The index started tracking 90 stocks in 1926 and was known as the S&P 90 index then. It was expanded to track 500 stocks in 1957.

How is the S&P 500 index calculated?

The S&P 500 index is calculated as follows:

Each of the component stocks’ market cap is determined by multiplying the company’s outstanding share count by its current share price.
The market caps of all the components are added together to get the index’s total market capitalization.

To determine the weight of each component stock, the stock’s market cap is divided by the index’s total market capitalization.

Can you buy S&P 500 index?

No, you cannot directly buy the S&P 500 index. However, you can buy an index mutual fund or ETF that tracks the S&P 500 index.

With an S&P 500 index fund, you will have a portfolio with broad exposure to the constituent stocks in the S&P 500 index.

Where can you follow the S&P 500 index today?

The total market cap for the S&P 500 index, as well as the market caps and index weights of the component stocks, are published frequently on financial websites, such as Bloomberg and Wall Street Journal.

Pros and Cons of using the S&P 500 index

Here are some of the pros and cons of using the S&P 500 index.

Pros

The index provides an easy way to track the overall health of the U.S stock market.
The historical data of the index’s movements help traders and investors to know how the markets have reacted to certain situations in the past.

Cons

The index gives higher weights to stocks with higher market capitalization, so such stocks have an undue influence on the movement of the index.
It does not provide any exposure to small-cap companies, so doesn’t reflect what happens to small-cap stocks.

FAQs about the S&P 500 index

When compared to other indexes like Nasdaq 100, DAX, FTSE, and the Dow Jones, here are unique features of the S&P 500.

What number of stocks are in the index?

The number of stocks in the S&P 500 index is roughly 500. At present, it is 504 because some component companies have different classes of stocks.

Calculation methodology

The calculation is market-cap-weighted.

What does the S&P 500 stand for?

S&P 500 stands for Standard and Poor’s 500.

What is the average return of the S&P 500?

Since its 1957 inception through 2021, the index has returned a historic annualized average return of around 10.5%.

Does the S&P 500 pay dividends?

The S&P 500 index is an index, not a stock. So, it does not pay dividends.

How often do S&P 500 components change?

The components of the index are rebalanced every quarter — the third Friday of March, June, September, and December — based on their weighting and other relevant factors.

What does the S&P 500 measure?

The S&P 500 index measures the value of the stocks of the 500 largest corporations by market capitalization listed on the New York Stock Exchange or Nasdaq.

What is the current S&P 500 record high?

As of June 10, 2022, the S&P 500 index’s record high is 4818.62, which was recorded on January 4, 2022, according to the TradngView chart.

What is the highest VIX has ever been?

The highest the VIX has ever reached is 85.47, according to the TradngView chart. This happened on March 18, 2020, owing to concerns about the COVID-19 pandemic and its impact on the economy.