Advance/Decline Quotes

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Why do many professional money managers track and analyze the Standard & Poor's 500 Index ("the S&P 500 index" or simply "the S&P 500") even though they may not necessarily include any of the index's stocks in their portfolios? The answer is that the S&P 500 is widely considered to be the foremost index that best reflects the mood (sentiment) of the broader market.

Following are some further facts about the S&P 500 index:

1. The S&P 500 comprises 500 of the biggest and the most successful U.S. companies. The 30 companies that make up to the Dow Jones Industrial Average (DJIA) are all included in the S&P 500, as are about half of the companies listed on the NASDAQ 100 index;
2. In 2004, the average daily trading volume of the S&P 500 exceeded 1.6 billion shares. For comparative purposes, the average number of shares traded daily on the New York Stock Exchange (NYSE) was roughly 1.7 billion;
3. The index level of the S&P 500 is a reflection of the total market capitalization of its constituent companies. (A company's market capitalization, its "market cap", is calculated by multiplying its share price by the number of outstanding shares);
4. An array of index shares (e.g., SPY), options (SPX), and futures (S&P 500 and e-mini S&P 500) derived from the S&P 500 index are among the world's most popular trading tools;
5. A large number of mutual funds track the S&P 500. For instance, the Rydex Dynamic Tempest 500 Fund (RYTPX) was designed to correlate to the inverse of the S&P 500 (RYTPX primarily engages in short sales of securities that are listed in the S&P 500). The fund also strives to apply leverage (by means of futures contracts and stock and index options) in order to gear its exposure to 200% of the S&P 500 index.

Above we have listed some of the main reasons why the S&P 500 is considered to be one of the best gauges of market activity and market mood. Ongoing tracking of the S&P 500 index should thus be considered  "mandatory" for investors / traders who are serious about market analysis.

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