Legal Definitions - Standard and Poor’s 500 (S&P 500)

The Standard and Poor’s 500 (S&P 500) is a widely recognized stock market index that tracks the performance of 500 of the largest publicly traded companies in the United States. These companies are selected based on criteria like market capitalization, which is the total value of a company's outstanding shares. Because it includes such a significant portion of the U.S. stock market, the S&P 500 is often considered a primary indicator of the overall health and performance of the American economy and its major corporations.

• Imagine an individual investor, Sarah, who has invested in a mutual fund that aims to mirror the performance of the broader U.S. stock market. When Sarah checks the news and sees that the S&P 500 has risen by 1% today, she understands that, on average, the largest U.S. companies have performed well, and her investment fund is likely to have seen a similar positive return. This illustrates how the S&P 500 acts as a benchmark for the performance of a significant segment of the market.

• A financial news anchor reports that "the U.S. economy showed signs of recovery this quarter, with the S&P 500 climbing steadily, indicating strong investor confidence in America's largest businesses." Here, the S&P 500 is used as a direct reflection of the economic sentiment and the financial health of major corporations, providing a quick snapshot of the overall economic climate to a general audience.

• A pension fund manager is evaluating the performance of their fund over the past year. To determine if their investment strategy was successful, they compare the fund's returns against the S&P 500's performance during the same period. If their fund outperformed the S&P 500, it suggests their active management added value beyond simply tracking the market. This demonstrates the S&P 500's role as a standard benchmark against which the success of large-cap investment portfolios is often measured.