Because the stock market can be so difficult to pin down, many investors have the task of formulating an overall picture of how the stock is performing, and what might happen in the future to push that stock one way or the other.
This has led to many investors finding an essential benchmark to draw from, and this is known as the S&P 500.
What Is The S&P 500?
If you’re a new investor looking to formulate this picture, the S&P 500 is an index that measures the stocks of the 500 largest corporations – measured by market capitalisation – in the Nasdaq and New York Stock Exchange.
This allows those investors to attain a “quick look” at the market, the overall economy, and how prices are being affected across the board. Because it covers around 80% of market capitalisation, it has become the benchmark for many investors and has great influence over financial media and professional brokers.
How Is The Value Calculated?
As mentioned before, the S&P 500 is calculated by the market capitalisation of each company. This is then equalled to the share price of the company, and then multiplied by the number of shares currently outstanding – all share counts are also adjusted to account for the shares available in open markets.
This provides a good place for investors to start, but over the last few years, new ranking systems have competed against the S&P 500 – such as FINQFULL’s ai-based stock ranking – to ascertain a wider understanding of the market and use tech to offer insights for investors who are looking to build their portfolio. This will be further discussed later.
How Should You Evaluate It?
The S&P 500 doesn’t just give investors an outlook of specific, well-performing stocks, it offers investors a way to evaluate a broad view of US economic health. This allows investors to consider factors behind market capitalisation and calculate a public float. To gain the full benefits of the S&P 500, this should also be evaluated on a regular basis.
Another advantage of this ranking system is that it is updated on a quarterly basis, with a committee deciding which companies will be included in the index. This allows the index to efficiently analyse and reflect upon the large-cap market while giving investors a solid way to evaluate the climate in any given period.
Are There Better Ways To Analyse The Market?
There are disadvantages, however. For one, many investors have a diverse portfolio, including assets, bonds, metals, cash, etcetera. These are values that the S&P 500 does not cover. As well as this, as we mentioned earlier, there are other companies utilising AI tech to offer a wider, more reliable estimate of the market in real-time.
For instance, FINQFIRST actually outperformed the S&P 500 between August 2022 and October 2023, beating it by a margin of 23.2% to -0.77%. Because this tech can also offer definitive, educated insights, many investors are finding it more reliable and more suitable for managing their personal portfolios – no matter how expensive or inexpensive they are. As a new investor, you should take this into consideration when deciding what to set as your own benchmark.
