The S&P 500's Monumental Journey
The S&P 500 Index, a cornerstone of the financial world, has charted a course through the tumultuous waters of economic cycles, technological revolutions, and global events. This narrative delves into the milestones that have punctuated its journey, celebrating its resilience and the foresight of those who navigated its path.
As of today, the S&P 500 Index boasts a remarkable total market capitalization of approximately $14.96 trillion. Interestingly, out of the 500 companies that originally constituted the index, 69 remain part of it, highlighting both the enduring presence of some firms and the dynamic nature of the index over time.
A Historic Milestone
This week marks a historic moment as the S&P 500 closes above 5000 points for the first time. From its inception in 1957, the index has been a barometer for the U.S. economy, encapsulating the performance of 500 leading companies across various sectors.
Historical Timeline
In 1923, the entity now known as S&P, originally called Standard Statistics Company, created its inaugural stock market index. This index included stocks from 233 U.S. companies and was updated on a weekly basis, laying the groundwork for the comprehensive financial indices we see today.
In 1926, Standard Statistics introduced a composite price index featuring 90 stocks, which was calculated daily, marking a significant step in the development of financial indices.
On March 4, 1957, the Standard & Poor's 500 Index was launched, encapsulating the performance of 500 prominent U.S. companies across various sectors. Initially, it had a market capitalization of $172 billion and included a diverse mix of 425 industrial companies, 15 railroads, and 60 utilities, offering a comprehensive snapshot of the American economy's health and trends.
In 1958, the S&P 500 experienced its most successful year in terms of percentage growth, closing the year with a remarkable increase of 38.06 percent.
On August 31, 1976, Vanguard revolutionized investing by launching the first retail index mutual fund, the Vanguard First Index Investment Trust, now known as the Vanguard 500 Index Fund. This fund, tracking the S&P 500, enabled individual investors to participate in the broad market through a single transaction. Today, it boasts $125 billion in assets, marking a significant milestone in making diversified investments accessible to the public.
On April 21, 1982, the Chicago Mercantile Exchange initiated the trading of futures contracts based on the S&P 500 Index, marking a significant expansion in financial instruments linked to the performance of the major U.S. stock market index.
On July 1, 1983, the Chicago Board Options Exchange introduced options contracts based on the S&P 500 Index, expanding the range of investment strategies available to traders by allowing them to hedge or speculate on the future movements of the index.
The Impact of Black Monday on the S&P 500
On October 19, 1987, the S&P 500 faced its most significant daily loss, plummeting by 20.47%. This historic drop, known as "Black Monday," was attributed to program trading and the use of portfolio insurance strategies. Remarkably, despite this steep decline, the S&P 500 managed to close the year on a positive note, showcasing the resilience of the market even in the face of severe volatility.
On January 22, 1993, State Street launched the groundbreaking SPDR S&P 500 ETF on the American Stock Exchange, marking the first ETF to be traded in the U.S. Known colloquially as"spiders," this ETF and its variants allowed investors to track the S&P 500's performance easily. With approximately $133.8 billion in assets, it stands as the largest ETF by asset size, showcasing its significant impact and popularity among investors seeking exposure to the broad U.S. stock market.
On September 9, 1997, the Chicago Mercantile Exchange (CME) unveiled the S&P E-mini futures contracts, priced at $50 times the S&P 500's value, making them a more accessible option compared to the standard S&P futures contracts. These E-mini contracts quickly rose to prominence, becoming the most traded futures on the CME, thanks to their smaller size and affordability for a broader range of investors.
On February 2, 1998, the S&P 500 marked a significant milestone by closing above 1,000 points for the first time, symbolizing a moment of achievement and optimism in the financial markets.
On March 24, 2000, during the peak of the dot-com bubble, the S&P 500 index soared to an unprecedented intraday high of 1,552.87, capturing the era's tech-driven market euphoria.
On March 24, 2004, the Chicago Board Options Exchange began trading futures on the VIX, the Volatility Index that measures the market's expectation of volatility based on S&P 500 index options. Commonly referred to as the market's "fear gauge," the VIX usually increases when stocks decline. It has recently dropped to its lowest since April 2007, indicating a period of relative calm in the markets.
Between March and September 2005, the S&P 500 Index underwent a significant change in its calculation methodology, shifting from a market-value weighted system to a float-adjusted format. This adjustment meant that the index's market capitalization would now only consider shares publicly available for trading, enhancing the accuracy and relevance of the index in reflecting market dynamics.
On October 9, 2007, the S&P 500 reached a new milestone, closing at an all-time high of 1,565.15, signaling a peak in market confidence and valuation at that time.
On October 11, 2007, the S&P 500 reached a new record for its highest value during trading hours, peaking at 1,576.09.
On October 13, 2008, the S&P 500 experienced its most significant daily percentage increase, surging by 11.58%. This day also saw its largest single-day point jump, adding 104.13 points to its value, marking a notable moment of recovery in the market's history.
The Turbulent Year of 2008 for the S&P 500
In 2008, the S&P 500 witnessed its most severe annual decline, dropping by 38.49%. This dramatic fall was punctuated by the collapse of Lehman Brothers in September, marking a critical point in the unfolding of the global financial crisis. This year stands as a stark reminder of the market's vulnerability to wider economic forces.
From its brief dip to 666 on March 6, 2009, and its closing low of 676 just three days afterward, the S&P 500 has achieved an annualized total return of 17.8 percent over the following ten years.
On March 9, 2009, the S&P 500 hit its lowest closing point of 676.53 following the 2008 financial crisis and Lehman Brothers' bankruptcy, marking a significant moment in market history.
On August 20, 2012, Apple surpassed Exxon Mobil to become the largest U.S. company by market capitalization within the S&P 500. Since then, the top position has fluctuated between the two companies, but Apple has maintained the lead with a current market cap of approximately $409 billion, compared to Exxon's $396 billion. This shift highlighted the growing influence of technology firms in the global market landscape.
On March 28, 2013, the S&P 500 achieved a milestone by closing at 1,569.19, breaking the record high set in 2007 and signaling the start of a new bull market. As we conclude 2023, with 10 years into this bull run, which typically lasts 20-26 years, we might anticipate another 10-15 years of growth. However, historical cycles suggest potential volatility starting around 2035-36.
On April 10, 2013, the S&P 500 reached a new all-time intraday high of 1,589.07, eclipsing the previous record set in October 2007. This milestone underscored the market's recovery and growth, further establishing a new benchmark for future performance evaluations.
On May 3, 2013, the S&P 500 surpassed the 1,600 mark for the first time, closing at 1,614.42, buoyed by an April U.S. non-farm payrolls report that exceeded expectations. Additionally, the index reached a new all-time intraday peak of 1,618.46, marking a significant milestone in its trajectory.
In August 2014, the S&P 500 achieved a monumental milestone by closing above 2000 points, a historic event at the time. This achievement came after a lengthy 16 years, a period that included navigating through two recessions, showcasing the resilience and growth of the market over an extended timeframe.
In July 2019, the S&P 500 crossed the 3000 mark, a significant leap achieved in just five years since surpassing 2000 points. This quicker pace, compared to the previous milestone, reflects increased market participation by active traders and the advent of user-friendly trading platforms like Robinhood. These developments have democratized trading, making it more accessible to a younger demographic and contributing to the market's robust performance.
Recovering from the downturn, the S&P 500 embarked on a decade-long bull run starting in 2009, culminating in a remarkable 330% increase by 2019. This period showcased the index's resilience and growth potential post-crisis.
In 2020, the outbreak of the COVID-19 pandemic and the ensuing recession led to a significant drop in the S&P 500, with the index falling by over 15%, reflecting the immediate economic impact of the global health crisis.
In March 2021, the S&P 500 surged past 4000 points, achieving a 1000-point increase in just two years after the COVID-19 downturn. This rapid recovery was supported by government economic interventions and an increase in retail trading activity during and after the pandemic, which significantly contributed to the index's accelerated growth.
Throughout 2020, the S&P 500 made a strong recovery, hitting multiple record highs in 2021. However, it faced a significant drop of over 1,500 points in 2022. By October 2023, the index managed to rebound, illustrating its volatile yet resilient nature over these years.
On February 9, 2024, the S&P 500 surpassed 5000 points, marking a significant milestone achieved in less than three years. This period, spanning 2023 and 2024, was characterized by relatively low market volatility. The Federal Reserve's interest rate hikes in 2023 aimed to curb inflation triggered by the economic stimulus of 2020, have begun showing results with inflation control, job market stabilization, and overall economic recovery. Despite market performance, challenges in reducing interest rates persist, particularly impacting the real estate sector, a key economic driver, anticipating potential future market turbulence could prompt interest rate adjustments.
Decades of Growth
The index's evolution from a 90-stock composite in 1926 to its current form reflects broader economic trends and technological advancements. The significant annual gain of 38.06 percent in 1958, the introduction of the first retail index mutual fund in 1976, and the inception of futures and options trading in the early '80s underscore the growing accessibility and sophistication of financial instruments.
Resilience Amid Adversity
The S&P 500 has weathered severe market downturns, including the 1987 Black Monday crash and the 2008 financial crisis, only to emerge stronger. Each recovery has been a testament to the resilience of the American economy and the index's role in signaling recovery and growth.
Technological Milestones and Market Accessibility
The digital age has transformed trading, making it more accessible to individual investors. The launch of the first ETF in 1993, the introduction of E-mini futures in 1997, and the transition to a float-adjusted index in 2005, have democratized investing, allowing broader participation in the stock market's gains.
Lessons from the SPX Odyssey
The SPX's ascent to 5000 points is more than a number; it's a reflection of economic growth, innovation, and the enduring spirit of the market. It underscores the importance of resilience in the face of adversity and the impact of technological advancements on investing. This journey, from 1926 to 2024, highlights the pivotal role of the S&P 500 in capturing the essence of market dynamics and investor sentiment over nearly a century.