4
CHAPTER
THE S&P 500 INDEX
A Half Century of U.S. Corporate History
Most of the change we think we see in life is due to truths being in and
out of favor.
ROBERTFROST, “THEBLACKCOTTAGE,” 1914Out of the three stock market indexes, the Dow, the Nasdaq, and the S&P
500, only one became the world standard for measuring the perform-
ance for U.S. stocks. It was born on February 28, 1957, and it grew out of
Standard & Poor’s Composite Index, a capitalization-weighted index
begun in 1926 that contained 90 large stocks. Ironically, the 1926 index
excluded the largest stock in the world at that time, American Telephone
and Telegraph, because S&P did not want to let the performance of such
a large firm dominate the index. To correct this omission and to recog-
nize the growth of new firms in the 1950s, Standard & Poor’s compiled
an index of 500 of the largest industrial, rail, and utility firms that traded
on the New York Stock Exchange.
The S&P 500 Index comprised about 85 percent of the total value of
firms traded on the Big Board in 1957. It soon became the standard
against which the performance of institutions and money managers in-51Copyright © 2008, 2002, 1998, 1994 by Jeremy J. Siegel. Click here for terms of use.