S&P Phenomenon

By
rjonesx
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What is ‘S&P Phenomenon’

The tendency for a stock that has been recently added to the S&P composite index to experience a temporary price increase. The S&P index to which this phenomenon refers to is the S&P 500 – the Standard & Poor’s index that is based on 500 leading companies in predominant industries of the U.S. economy. When a stock is newly added to the S&P composite index, it is often accompanied by a significant number of buy orders as many S&P-related index funds add the particular instrument to their portfolios. This increase in buy orders temporarily drives up the price, creating the S&P phenomenon.

Explaining ‘S&P Phenomenon’

The S&P 500 is often considered the best single gauge of the large cap U.S. equities market. The index, which was first published in 1957, is followed by many traders and investors as a means of keeping a pulse on the overall market. The index is maintained by the S&P Index Committee, which includes Standard & Poor’s economists and index analysts. This team meets regularly to monitor the index and to consider and implement changes to the index.

Criteria for index additions include: being a U.S. company, market capitalization in excess of $4 billion, a public float of at least 50%, financial viability, adequate liquidity and reasonable price, sector representation and company type.

Criteria for index removals include: violation of one or more index inclusion criteria, mergers, acquisitions or restructuring that changes inclusion status.

Further Reading

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