In 1923, the Standard Statistics Company created a new stock market index. Their goal was to compete with the Dow Jones Industrial Average, which was popular with investors. To stand out, Standard Statistics decided to use data on 233 companies instead of just 30 like the Dow Jones.
Years later, the Standard Statistics Company merged with Poor’s Publishing to create the Standard & Poor’s (S&P) company. In 1957, S&P made a few changes to its stock market index that would allow it to better compete with the Dow Jones.
First, S&P increased the number of companies that it tracked from 233 to 500.
Second, S&P let larger companies have more influence over the index’s movements than smaller companies. S&P judged the size of each business by using its market capitalization, which is the total dollar market value of a company’s equity. This is called a capitalization-weighted index.
On March 4, 1957, the S&P 500 was officially launched.
In 2021, large companies like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN) had market values that exceeded $1 trillion. That causes them to have much more influence over the index than smaller companies like Hanesbrands (NYSE:HBI) and Under Armour (NYSE:UA) which are worth less than $10 billion. This is why many investors like that the S&P 500 is a capitalization-weighted index.
Years later, the Standard Statistics Company merged with Poor’s Publishing to create the Standard & Poor’s (S&P) company. In 1957, S&P made a few changes to its stock market index that would allow it to better compete with the Dow Jones.
First, S&P increased the number of companies that it tracked from 233 to 500.
Second, S&P let larger companies have more influence over the index’s movements than smaller companies. S&P judged the size of each business by using its market capitalization, which is the total dollar market value of a company’s equity. This is called a capitalization-weighted index.
On March 4, 1957, the S&P 500 was officially launched.
In 2021, large companies like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN) had market values that exceeded $1 trillion. That causes them to have much more influence over the index than smaller companies like Hanesbrands (NYSE:HBI) and Under Armour (NYSE:UA) which are worth less than $10 billion. This is why many investors like that the S&P 500 is a capitalization-weighted index.
- Brian Feroldi, Why Does The Stock Market Go Up?:
Everything You Should Have Been Taught About Investing In School, But Weren't, 2022
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