Investors see the Standard & Poor's 500 Index as a crucial tool for measuring the health of the U.S. economy. With its roots planted in the 19th century, the S&P has a fascinating history.
The S&P 500 – short intro
The S&P 500 (#USA500) includes 500 of the largest companies whose stocks trade on the New York Stock Exchange or Nasdaq.
For over 60 years, the index has outperformed other major asset classes, such as bond or commodities, accurately tracking the growth of the U.S. economy. On the other hand, price shifts in the S&P 500 have also reflected the troublesome periods in the country. For these reasons, investors tend to rely on the index for measuring the market sentiment surrounding the country’s economy.
Origins of the term
First, S&P – Standard and Poor’s traces back to mid 19th century. In 1860, a certain financial analyst called Henry Varnum Poor published a book called “History of Railroads and Canals in the United States.” The volume covered the operational and financial state of railroad companies in the U.S. In 1868, Henry Varnum Poor and Henry William Poor created "H.V. and H.W. Poor Co.," which published two guidebooks that were updated annually.
Brief history of the S&P 500
The Standard Statistics Company was formed in 1906, providing financial information regarding non-railroad companies. It revealed its first stock market indicator in 1923, based on 233 companies and 26 industry groups. Three years later, the firm created a 90 Stock Composite Price Index, comprising 50 Industrials, 20 Rails and 20 Utilities.
Fast forward to 1941, and Standard & Poor’s came to life, with Poor’s Publishing and the Standard Statistics Bureau merging. It increased the number of companies on the basis of which the stock index was computed to 416.
In 1957, S&P introduced the 500. Four major industry sectors have also been developed: Industrials, Utilities, Financials, and Transportation. It was the same year when it opened on January 01, 1957, at 386.36 points. During its first ten years of existence, the value of the index surged to nearly 700 points, reflecting the economic boom that followed World War II.
Later, in 1966, The McGraw Companies acquired Standard & Poor’s Corporation, now known as S&P Global after its 2016 rebranding.
Five biggest-impact events
The 1982-2000 bull market
Due to many different factors such as interest rates falling, healthy global economic growth, tech innovations, plunging commodity prices, and a stabilizing political climate, the S&P 500 skyrocketed 1350% between 1982 and 2000. The easing of inflationary pressures also had a crucial role in achieving such levels of performance.
A bull market defines a rising stock market that does not experience a price correction of 20% or more.
The dot-com crash
In the 2000s, the stock market experienced a bubble. Overevaluations, excess public enthusiasm for stocks and speculation in the technology sector took control. It was just a matter of time before the bubble would eventually burst. And when it did, the S&P 500 plummeted 40%. But only seven years later, the index was smashing records yet again, before…
…the financial crisis struck.
The rapid decline in residential prices led to an environment of intense fear and distrust amongst investors. The S&P 500 was deeply affected, losing almost 60% in less than two years (October 2008 – March 2009) and marking its biggest fall since World War II.
A New Dawn
By early 2013, the S&P had recovered its losses from the financial crisis. It soared past the 2007 highs and the previous highs from the tech bubble of 2000. This fantastic rally continued for nearly another seven years, with the index experiencing a flourishing bull market. The S&P 500 peaked at 3,386.20 on February 02, 2020—a 400%+ return over the period!
Stable economic growth and low-interest rates certainly helped keep equity prices high during the 10-year run.
Present times – the Coronavirus pandemic and the start of a new growth wave
The rapid COVID-19 spread led to the closure of many businesses, sending equity markets, such as the S&P 500, on the brink of collapse.
So, from February 19, 2020, when the index had hit an all-time high of 3,386.20, it took a little more than a month for the #benchmark index to plummet to 2,237.40. The impact on the U.S. economy was also severe, with the GDP declining by as much as 33% in Q2 2020 compared to the same quarter from 2019.
By August 2020, the index was on the rise again due to trillions of dollars in fiscal stimulus poured by the U.S. government, loan programs for ailing businesses, and vaccine mass production.
The S&P 500 surged from the March pandemic low of 2,237.40 to close out 2020 at 3,756.10 on December 31, 2020—a nearly 68% surge. The S&P continued its march higher in the early part of 2021, closing at a fresh all-time high of 4,019.87 on April 01, 2021.
What could happen next? Nobody can predict the future, but you can stay tuned to CAPEX.com Featured Articles section to learn all about the freshest market developments!
Sources: investopedia.com, businessinsider.com.
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