Happy 100th Birthday, S&P 500!

The Standard & Poor’s 500 Index, the granddaddy of stock market indexes, is celebrating its centennial. In honor of this milestone, we’re highlighting what makes the S&P 500 so important, how it works, and what it has historically told us about investing.

A Brief History

While the S&P 500 officially launched in 1957, its roots go back further. Designed by Lew Schellbach and developed alongside George Olsen, the index aimed to track 500 leading U.S. companies as a comprehensive measure of the stock market. At inception, the index included:

• 425 industrial companies
• 25 rail companies
• 50 utility companies

Together, these represented roughly 90% of the total U.S. stock market value at the time, a groundbreaking level of coverage.

Equally innovative, the index could be calculated and updated frequently throughout the day, improving on earlier benchmarks. Its data was later extended back to 1926, which is why we are recognizing its 100-year history.

What Is the S&P 500?

At its core, an index is simply a representative sample used to measure something broader. For example:

• The Consumer Price Index (CPI) measures inflation
• The Unemployment Rate measures labor market health
• The S&P 500 measures the performance of large U.S. companies

By tracking 500 leading businesses across sectors, the S&P 500 serves as a widely accepted barometer of the U.S. stock market and, by extension, investor sentiment, and economic expectations.

Like most indexes, the S&P 500 itself isn’t directly investable. However, there are index funds designed to closely track its performance. Notably, the first retail index fund, the Vanguard S&P 500 Index Fund, was launched by John Bogle in 1976, helping democratize investing.

Index Construction

The S&P 500 is maintained by an index committee that selects companies based on both quantitative and qualitative criteria, which include:

• U.S.-domiciled company
• Listed on a major U.S. exchange
• Market capitalization of approximately $23 billion or more
• At least 10% of shares publicly available (free float)
• Consistent trading volume (250,000 shares/month for trailing six months)
• Positive net income over the trailing four quarters
• At least 12 months of public trading history
• In addition, the committee considers:
• Sector balancing
• Corporate actions (mergers, spin-offs)
• Other market developments

How It’s Calculated

The S&P 500 is a free-float, market capitalization-weighted index, meaning:

• Larger companies have a greater impact
• Only publicly available shares are considered

The formula is conceptually simple: Index Level = Total Free-Float Market Cap ÷ Divisor. The divisor is a proprietary adjustment factor that ensures continuity when companies enter/exit the index or undergo structural changes.

How Has It Performed?

One of the S&P 500’s greatest strengths is its 100-year data history, some highlights of which are below:

• Average annual return (total return): 10.49%
• Volatility (standard deviation): 19.48
• Best calendar year: +53.99%
• Worst calendar year: –43.34%

Percent of time with positive return:

• 1-year periods: 74%
• 5-year periods: 88%
• 10-year periods: 96%
• 15-year periods: 100%

Why It Matters

The S&P 500 is more than just an index; it’s a foundation of modern investing:

• A benchmark for portfolio performance
• The backbone of index funds and ETFs
• A lens into the health of corporate America

Its evolution has shaped how investors think about diversification, costs, and long-term discipline.

Final Thoughts

It’s hard to imagine today’s investment landscape without the S&P 500. What began as an ambitious effort to better measure the market has become one of the most influential tools in finance. A century later, it remains a cornerstone of investment strategy, helping investors contextualize risk, frame expectations, and stay focused on long-term outcomes.

The information provided herein is for educational purposes only, and should not be construed as advice, including, but not limited to tax, legal, insurance, investment, or retirement advice. For your specific planning needs, please seek the advice of Integris Wealth Management, your tax accountant, attorney, insurance agent, or other professional as appropriate. Investing involves the risk of loss.