Standard & Poor's (S&P) Definition - Investopedia

Standard & Poor's (S&P) is a company well known around the world as a creator of financial market indices—widely used as investment benchmarks—a data source ... TableofContents Expand TableofContents WhatIsStandard&Poor's(S&P)? UnderstandingStandard&Poor's Standard&Poor'sIndexes S&P500IndexFutures UnderlyingRatings(SPURs) Example Standard&Poor'sFAQs TheBottomLine Investing Markets WhatIsStandard&Poor's(S&P)? Standard&Poor's(S&P)isacompanywellknownaroundtheworldasacreatoroffinancialmarketindices—widelyusedasinvestmentbenchmarks—adatasource,andanissuerofcreditratingsforcompaniesanddebtobligations.It'sperhapsbest-knownforthepopularandoften-citedS&P500Index.Thecompany'srootsdatebacktothe1860s.Since2016,itsofficialcorporatenamehasbeenS&PGlobal. KeyTakeaways Standard&Poor's(S&P)isaleadingindexprovideranddatasourceofindependentcreditratings.TheMcGraw-HillCos.purchasedS&Pin1966, andin2016, thecompanybecameknownasS&PGlobal.Standard&Poor'sisoneofthelargestcreditratingagencies,assigninglettergradestocompaniesandcountriesandthedebttheyissueonascaleofAAAtoD,indicatingtheirdegreeofinvestmentrisk.ThepopularS&P500IndexisperhapsStandard&Poor'sbest-knownproduct.TheS&P500isthebasisformanyinvestments,includingfuturescontracts,mutualfunds,andETFs. 1:22 StandardAndPoor's500Index UnderstandingStandard&Poor's(S&P) Standard&Poor'sgrewoutoftwocompanies:Poor'sPublishing,apublisherofrailroadindustryguidebooksofficiallyfoundedin1868,andtheStandardStatisticsBureau(laterCompany),foundedin1906,whichpublishedfinancialdataoncompanies.In1923,itreleaseditsfirststockmarketindicator,whichcontained233companies.Poor'sPublishing,meanwhile,issueditsfirstratingin1916. Thetwofirmsmergedin1941,tocreateStandard&Poor's. TheMcGraw-HillCos.purchasedS&Pin1966.In2012,Standard&Poor’scombineditsindexoperationswithDowJonesIndices(whichMcGraw-Hillowned)tobecometheleaderinstockmarketindexes. In2016, McGrawHillFinancialrebrandeditselfasS&PGlobal.S&PGlobaldivisionsincludeS&PGlobalRatings,S&PGlobalMarketIntelligence,S&PDowJonesIndices,andS&PGlobalPlatts.Thecompanyhasmorethan1,500creditanalysts,and more than1millioncreditratingshavebeenissuedongovernments,corporations,thefinancialsector,andsecurities. S&P isamajor creditriskresearcher,coveringmultipleindustries,benchmarks,assetclasses,andgeographies. Itissuescreditratings,rangingfromAAAtoD,onpublicandprivatecompanydebt,aswellasgovernments.Italsooffersratingsonshort-termdebtandprovidesoutlookratingsthatrangefromsixmonthstotwoyears. S&P'smajorcompetitorsforcreditratingsincludeMoody'sandFitch,andforfinancialindices,BloombergBusinessServices. Standard &Poor's Indexes TheS&P500IndexlaunchedinMarch1957.Itwasthefirstindextobecomputer-generatedandtobepublisheddailyandhasbecomeastand-infortheU.S.stockmarketitself. TheS&P500Indexcontains500ofthelargeststocksthattradeontheNewYorkStockExchange(NYSE)andNasdaq,makingitatooltogaugetheoverallhealthoflargeAmericancompanies. TheS&P500isprobablythesinglemostpopularequityindexintheworldandisusedasaperformancebenchmarkforavarietyofmutualfunds,ETFs,andotherassetsandsecurities. OtherpopularindexesofferedbyS&PGlobalcoverdifferentsectorsofthemarketanddifferentmarketcapitalizations.LargeofferingsfromS&PDowJonesIndicesincludetheS&PSmallCap600,theS&PMidCap400,theS&PComposite1500,andtheS&P900.Eachrepresentsalookatmarkethealthbasedonitssub-sector. S&P500IndexFutures ThefirstS&P500 futurescontracts wereintroducedbytheChicagoMercantileExchange(CME)in1982,andcarriedanotionalvalueof$250timesthevalueoftheS&P500.TheCMEaddedthe E-mini contract—valuedat$50timestheS&P500—in1997toallowforsmallerinvestmentsbyawiderrangeofinvestors.AndtheevensmallermicroE-mini,withamultiplierofjust$5,wasintroducedin2019. The"E"inE-ministandsforelectronic,areflectionofthefactthatwhenE-miniswerelaunchedin1997theytradedexclusivelyonCMEGlobex,CME'selectronictradingsystem,ratherthaninopenoutcrypitslikeotherfuturescontracts.ManytradersfavoredtheE-minioverthestandardcontractnotonlyforitssmallerinvestmentsizebutalsoforitsliquidity.Consequently,CMEdelistedthestandardcontractinSeptember2021. Aswithallfutures,investorsareonlyrequiredtofrontafractionofthecontractvaluetotakeaposition.Thisrepresentsthe margin onthefuturescontract.Thesemarginsarenotthesameas marginsforstocktrading.Futuresmarginsshow"skininthegame"thatmustbeoffsetorsettled. Standard&Poor'sUnderlyingRatings(SPURs) Standard&Poor'sUnderlyingRatings(SPURs)provideanopiniononamunicipality'screditqualityseparatefromguarantororinsurercreditenhancements.Municipalorotherpublicsectorbondstypicallyinclude creditenhancementwhichisusedtoobtainbettertermsbyprovidingincreasedassurancethattheborrowerwillhonoritsobligationthroughadditionalinsuranceorathird-partyguarantee.Standard&Poor'sissuesaSPURsratingonlyattherequestoftheissuer/obligor andmaintainssurveillanceofanissuewithapublishedSPUR. ExampleofStandard&Poor'sRatings Standard&Poor'sGlobalRatingsdivisionranksdebtinstruments,likebonds,andthecompaniesthatissuethem,intermsofcreditworthiness—definedasthelikelihoodofdefaultorinabilitytopaydebtsinatimelymanner.Similartoacademicgrades,eachratingconsistsofaletteronascaleofAtoD,sometimesaugmentedwithaplusorminussignoranumber.Thehigherthegrade,thelowertherisk(inS&P'sestimation). AratingofBBBandaboveiscalled"investmentgrade"—thesafestsortofinvestment.Ratingsbelowthatareconsidered"speculative"—agreaterdegreeofrisk. ThechartbelowdisplaysStandard&Poor'sratingsystemforshort-termdebt—bills,loans,andotherobligationswithamaturityofoneyearorless.Thesearethesortofinstrumentsthatmoneymarketfundsandmoneymarketaccountsofteninvestin. S&PRatingsScaleforShort-TermDebt LetterRating InvestmentGrade DegreeofCreditworthiness  A–1 Investment Strong  A–2 Investment Satisfactory  A–3 Investment Adequate  B Speculative Currentlymeetscommitmentsbutfacesuncertainties  C Speculative Vulnerabletononpayment  D Speculative Indefault WhatDoesStandardandPoor'sMean? Standard&Poor's(S&P)isa company,aleadingindexprovider,anddatasourceof independentcreditratings.Thenamecomesfromthe1941mergeroftwofinancialdatapublications.HenryVarnumPoor'spublicationonrailroadprices(datingbackto1860),andTheStandardStatisticsBureau,whichwasfoundedin1906.Sometimesareferenceto"Standard&Poor's"canalsomeanthecompany'smostfamousindex:theS&P500,whichtrackstheperformanceofthe500largestpubliccompaniesintheU.S. HowDoesStandardandPoor'sMakeMoney? Standard&Poor'sispaidfeesforitsratingservicesbyissuersofsecuritiesanddebtobligations.Inaddition,companiesandindividualsoftenpayforitsmoredetailedmarketintelligenceandanalysisreports,andsubscribetootherresearchservices. WhatCompaniesAreintheS&P500? TheS&P500consistsofthe500largest publicly-tradedcompaniesintheU.S.Manyarehighlyfamiliarnames:Microsoft,Apple,ExxonMobile,BankofAmerica,Visa,andCoca-Cola.ToqualifyfortheS&P500Index,acompanymusthaveatleast10%ofitssharesoutstandinginthepublicmarketandhaveamarketcapitalizationofatleast$13.1billion. HowDoIFindaCompany'sS&PCreditRating? Youcanfindacompany'sS&PratingbygoingtotheS&PGlobalRatingswebsite.OnceyouregisterforefreewithS&PGlobalRatings'website,youcanthenlookupacompany. IsBBBInvestmentGrade? Yes,BBBdoesindicateinvestmentgrade.ItisthelowestS&Pratingtoqualifyasinvestmentgrade.Itmeansabondoranissuer"exhibitsadequateprotectionparameters.However,adverseeconomicconditionsorchangingcircumstancesaremorelikelytoweakentheobligor'scapacitytomeetitsfinancialcommitmentsontheobligation,"asS&Pputsit. TheBottomLine Standard&Poor's—officially,S&PGlobal—isapubliccompanyinthefinancialinformationandanalyticsbusiness.BasedintheU.S.,butwithofficesaroundtheworld,itprovidesfinancialmarketresearchandintelligence,maintainingwidelyfollowedmarketandsecuritiesindexes—thebest-knownofwhich,theS&P500Index,actsasabarometeroftheentireU.S.stockmarket. Inaddition,Standard&Poor'sisoneofthelargestcreditratingagencies,assigninglettergradestocompaniesandcountriesandthedebttheyissue. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. S&PGlobal."OurHistory." S&PGlobal."AboutS&PGlobalRatings." S&PDowJonesIndices."S&PU.S.IndicesMethodology,"Pages,3,4,11. CMEGroup."FridayFunFact:TheOriginsofE-miniS&P500Futures." CMEGroup."FrequentlyAskedQuestions:MicroE-miniEquityIndexFutures." CMEGroup.“CMEGrouptoPermanentlyCloseMostOpenOutcryTradingPits;EurodollarOptionsPitwillRemainOpen.” S&PGlobal."S&PGlobalRatingsDefinitions." S&PGlobal."S&PDowJonesIndicesAnnouncesUpdatetoS&PComposite1500MarketCapGuidelines." CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms CreditRating:WhatItIsandWhyIt'sImportanttoInvestors Acreditratingisanassessmentofthecreditworthinessofaborrower—ingeneraltermsorwithrespecttoaparticulardebtorfinancialobligation. more TheBondMarket(akaDebtMarket):EverythingYouNeedtoKnow Thebondmarketisthecollectivenamegiventoalltradesandissuesofdebtsecurities.Learnmoreaboutcorporate,government,andmunicipalbonds. more AA+vs.Aa1:What'stheDifference? AA+isthesecond-highestbondratingassignedbyratingagencyS&PwhileAa1istheequivalentfromMoody's.Bothsignifyalow-riskinvestment. more S&P500Index:WhatIt’sforandWhyIt’sImportantinInvesting TheS&P500Index(Standard&Poor's500Index)isamarket-capitalization-weightedindexofthe500largestpubliclytradedcompaniesintheU.S. more B3/B-Definition B3/B-denotesalettergraderatingsagenciesassigntohighrisk/speculative,companies,issuersandtheirdebtobligations. more B1/B+ B1/B+isthehighestqualitycreditratingfornon-investmentgradebonds. more PartnerLinks RelatedArticles SEC ABriefHistoryOfCreditRatingAgencies StockMarkets TimelineofU.S.StockMarketCrashes CorporateDebt WhatDoAA+andAAACreditRatingsMean? RealEstateInvesting CDOsandtheMortgageMarket Markets BondMarketvs.StockMarket:KeyDifferences FinancialFuturesTrading HowDoS&P500FuturesWork?