S&P 500 Index vs FTSE 100 Index

  • Oct 18, 2019 BST
  • Team Kalkine
S&P 500 Index vs FTSE 100 Index

The S&P 500 Index

S&P 500 Index is an American stock index comprising of the stocks of the top five hundred companies listed on the various American Stock Exchanges. It is one of the most widely followed stock indices and is often considered as the best representation of the stock markets in the United States.

The Index is market capitalization weighted with the value of the top 10 components on the index making up for close to 22 per cent of the total capitalized value of the index  (that is, the change in prices of stocks with greater market capitalizations “the share price multiplied by the outstanding number of shares” have a higher impact on the calculation of the stock index than the companies having a smaller market capitalization). Although the index is domiciled in the United States it plays host to a number of foreign companies as well. On an average, the companies, which are constituents of this index, derive nearly two third of their revenues from within the United States. The index is also seen as a barometer of the economy  of  the United States with the Confidence Board Inc (Section 501 (c) (3) not for profit company under United States federal law) calculating The Conference Board Leading Economic Index (LEI) using the S&P 500 Index as one of the inputs.

The selection of stocks to be included in the index is done by a committee who look for criteria like market capitalization, annual dollar value traded to float-adjusted market capitalization and minimum monthly traded volume of shares in each of the six months leading up to the evaluation date. However, to arrive at the market capitalization of individual companies and the total value of the index, Standard & Poor's takes the number of shares available for public trading only and does not include shares held by promoters or controlling shareholders which are not publicly traded. Other than that the general criteria for companies to be part of the index are that they should be traded either on the New York Stock Exchange or on the NASDAQ, and they should not be limited partnerships, master limited partnerships, OTC Bulletin Board issues, closed-end funds, exchange-traded funds, Exchange-traded notes, royalty trusts, tracking stocks, preferred stock, unit trusts, equity warrants, convertible bonds, investment trusts, American depositary receipts, American depositary shares or MLP IT units.

The value of the Index is calculated and updated every 15 seconds on each trading day which is about 1,559 times in a day. The ensuing price data is distributed by the Reuters company. This Index is owned and maintained by the S&P Dow Jones Indices LLC  a joint venture company between S&P Global, the CME Group, and News Corp.

The FTSE 100 stock Index

This index is the second highest value stock index of the United Kingdom after the FTSE All Share index. Launched on 3 January in the year 1984, the FTSE 100 stock index comprises of the top 100 stocks listed on the London Stock Exchange arranged in ascending order in terms of the market capitalization, which at any point of time represents at least 80 percent of the total market capitalization of the London Stock Exchange. Some of the top name of companies donning this list are 3i Group Plc, Associated British Foods Plc, Admiral Group Plc, Anglo American Plc, Antofagasta plc, Ashtead Group Plc, AstraZeneca Plc, Auto Trader Group Plc, AVEVA Group Plc, BAE Systems Plc, Barclays Plc, Barratt Developments Plc, JD Sports Fashion Plc, Berkeley Group Holdings (The) Plc, BHP Group Plc, BP Plc, British American Tobacco Plc, British Land Co Plc, BT Group Plc and  Bunzl Plc.

The FTSE 100 stock Index is calculated on a real time basis and is published every second from 8.00 am in London when trading starts on the London Stock Exchange till 4.30 pm in the afternoon when the trading on the exchange concludes for the day.

This headline stock index, also known as the large-cap stock index, is representative of the largest companies in the United Kingdom, in terms of revenues and market capitalization, is seen by many as the barometer of the British economy. It is studied by academicians, economists, debt market makers, stock market professionals and researchers alike to carefully consider the implications of any unwarranted movements in the general economic indicators of the British economy on the stock index and vice versa. However, this concept of being the barometer of the British economy has come to be challenged more recently as the index now houses an increasing number of multinational and foreign companies whose performance is remotely linked to the macro-economic fundamentals of the British economy. It is being argued that the said title should now go to the FTSE 250 index which has a greater proportion of Britain domiciled companies with a healthy mix from all sectors.

It has been observed that between the British Pound Sterling and FTSE 100 index there exists an inverse relationship. Whenever there is weakness in the British currency most of the FTSE 100 companies enjoy better fortunes on account of higher sales. A fall in the British Pound Sterling usually signals a high earning period for the exporters of that country as well as other businesses dependent on these exporters.

Performance of S&P 500 over the Years

For the S&P 500 index, the total rate of return (including dividends) compounded annually through 2018 is 10.21 per cent. The rate of return (without dividends, or just on the index price itself) through 2018 was 6.98 per cent and the S&P 500 index compounded annual increase from 1950 to mid-2019 is consistent at 7.5 per cent.

Performance of FTSE 100 over the years

For the FTSE 100 stock index, the total return for the twelve-month period to September 2019 was 3.2 per cent. The total return for the five-year period to September 2019 was 36.8 per cent.

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