The S&P 500

When 30 stocks just isn't enough

So, I wanted to do a little analysis on the stock market and what has been going on since the outbreak of the Coronavirus but I realized I hadn’t even done a simple introductory article on the S&P 500 yet! I guess all the craziness of the outbreak has thrown my near-term writing plans aside to cover the rapid virus developments.

Let’s take a look then at one of the longest time series in the finance world, the monthly average of the S&P 500:

If you are somewhat familiar with the S&P 500 index, you might think, “wait, I thought the Dow was the oldest index? Wasn’t the S&P 500 first published in 1957, well after the Dow?” And, that’s correct!

However, some people much smarter than I am have calculated what the index would have been historically had it existed. Specifically, this data is from Robert Shiller, who I trust because he has a Nobel Prize (a pretty decent qualification).

The chart above should look very familiar to the Dow Jones Industrial Average. And, basically, they are the same thing - representative benchmarks of the stock market. It’s just that the Dow Jones is a basket of 30 stocks and the S&P 500 is a basket of, you guessed it, 505 stocks. (The trick is that those 505 stocks represent 500 companies.) People like using the S&P because they are snobby and feel using a bigger basket of stocks representing a broader share of the market makes them superior to people who prefer the Dow.

Now that we’ve got two of the most popular stock indices, we can cover their performance since the Coronavirus news broke out in the next post.