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Beacon Equity Research

S&P 500 Index

Overview

The S&P 500 index is probably the most commonly referenced U.S. equity benchmark. This diverse index comprises over 70% of the total market cap of all stocks traded in the U.S. First developed in 1923, the index initially contained 233 stocks. However, in 1957 it was modified to include a diversified basket of 500 common stocks.

Composition

The S&P 500 is not comprised of simply the 500 largest U.S. stocks. Instead, it consists primarily of leading companies from a wide variety of different economic sectors. The index started with 23 identified sectors, but today contains over 100 unique sectors. Most analysts choose to use the S&P as their preferred benchmark index thanks to its diversified sector coverage as well as its market value weighting. Because the index is weighted by market cap, the largest firms have the greatest impact on the S&P's value.

The table below lists the current top ten holdings in the S&P 500:
CompanyTickerWeight (%)
General ElectricGE3.2%
MicrosoftMSFT2.9%
Exxon MobilXOM2.7%
PfizerPFE2.5%
CitigroupC2.3%
Wal-Mart StoresWMT2.1%
American Intl.AIG1.8%
IntelINTC1.7%
Bank of AmericaBAC1.6%
Johnson & JohnsonJNJ1.6%
This table shows the top ten sectors represented in the S&P 500 index:
Sector% of Index
Financial Services20.3%
Healthcare13.4%
Industrial Materials12.2%
Hardware10.8%
Consumer Goods9.7%
Consumer Services8.8%
Energy6.5%
Software4.5%
Business Services3.9%
Media3.9%

Positives

This index is probably the single best way to track the overall performance of our nation's largest and most dominant companies. Most investors are familiar with the S&P 500 and the index is extremely liquid.

Drawbacks

Because they are unlikely to qualify due to the index's high market cap requirements, the S&P 500 does not provide investors with exposure to some of the smaller, yet in many cases faster growing, companies on the market. In addition, because it is market value weighted, the largest companies in the index have a disproportionate amount of influence on the S&P 500's results.