Standard & Poor's (S&P): Indexes and Credit Ratings (2024)

What Is Standard & Poor's (S&P)?

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, and an issuer of credit ratings for companies and debt obligations. It's perhaps best-known for the popular and often-cited . The company's roots date back to the 1860s. Since 2016, its official corporate name has been S&P Global.

Key Takeaways

Standard & Poor's (S&P) is a leading index provider and data source of independent credit ratings.
The McGraw-Hill Cos. purchased S&P in 1966,and in 2016,the company became known as S&P Global.
Standard & Poor's is one of the largest credit rating agencies, assigning letter grades to companies and countries and the debt they issue on a scale of AAA to D, indicating their degree of investment risk.
The popular S&P 500 Index is perhaps Standard & Poor's best-known product.
The S&P 500 is the basis for many investments, including futures contracts, mutual funds, and ETFs.

Understanding Standard & Poor's (S&P)

Standard & Poor's grew out of two companies: Poor's Publishing, a publisher of railroad industry guidebooks officially founded in 1868, and the Standard Statistics Bureau (later Company), founded in 1906, which published financial data on companies. In 1923, it released its first stock market indicator, which contained 233 companies. Poor's Publishing, meanwhile, issued its first rating in 1916. The two firms merged in 1941, to create Standard & Poor's.

The McGraw-Hill Cos. purchased S&P in 1966. In 2012, Standard & Poor’s combined its index operations with Dow Jones Indices (which McGraw-Hill owned) to become the leader in stock market indexes.

In 2016,McGraw Hill Financial rebranded itself as S&P Global. S&P Global divisions include S&P Global Ratings, S&P Global Market Intelligence, S&P Dow Jones Indices, and S&P Global Platts. The company has more than 1,500 credit analysts, andmorethan 1 million credit ratings have been issued on governments, corporations, the financial sector, and securities.

S&Pis a majorcredit risk researcher, covering multiple industries, benchmarks, asset classes, and geographies.It issues credit ratings, ranging from AAA to D, on public and private company debt, as well as governments. It also offers ratings on short-term debt and provides outlook ratings that range from six months to two years.

S&P's major competitors for credit ratings include Moody's and Fitch, and for financial indices, Bloomberg General Business Services.

Standard& Poor'sIndexes

The S&P 500 Index launched in March 1957. It was the first index to be computer-generated and to be published daily and has become a stand-in for the U.S. stock market itself.

The S&P 500 Index contains 500 of the largest stocks that trade on the New York Stock Exchange (NYSE) and Nasdaq, making it a tool to gauge the overall health of large American companies.The S&P 500 is probably the single most popular equity index in the world and is used as a performance benchmark for a variety of mutual funds, ETFs, and other assets and securities.

Other popular indexes offered by S&P Global cover different sectors of the market and different market capitalizations. Large offerings from S&P Dow Jones Indices include the S&P SmallCap 600, the S&P MidCap 400, the S&P Composite 1500, and the S&P 900. Each represents a look at market health based on its sub-sector.

S&P 500 Index Futures

The first S&P 500futures contractswere introduced by the Chicago Mercantile Exchange (CME) in 1982, and carried a notional value of $250 times the value of the S&P 500. The CME added theE-minicontract—valued at $50 times the S&P 500—in 1997 to allow for smaller investments by a wider range of investors. The even smaller micro E-mini, with a multiplier of just $5, was introduced in 2019.

The "E" in E-mini stands for electronic, a reflection of the fact that when E-minis were launched in 1997 they traded exclusively on CME Globex, CME's electronic trading system, rather than in open outcry pits like other futures contracts. Many traders favored the E-mini over the standard contract not only for its smaller investment size but also for its liquidity. Consequently, CME delisted the standard contract in September 2021.

As with all futures, investors are only required to front a fraction of the contract value to take a position. This represents themarginon the futures contract. These margins are not the same asmargins for stock trading. Futures margins show "skin in the game" that must be offset or settled.

Standard & Poor's Underlying Ratings (SPURs)

Standard & Poor's Underlying Ratings (SPURs) provide an opinion on a municipality's credit quality separate from guarantor or insurer credit enhancements. Municipal or other public sector bonds typically includecredit enhancement which is used to obtain better terms by providing increased assurance that the borrower will honor its obligation through additional insurance or a third-party guarantee. Standard & Poor's issues a SPURs rating only at the request of the issuer/obligorand maintains surveillance of an issue with a published SPUR.

Example of Standard & Poor's Ratings

Standard & Poor's Global Ratings division ranks debt instruments, like bonds, and the companies that issue them, in terms of creditworthiness—defined as the likelihood of default or inability to pay debts in a timely manner. Similar to academic grades, each rating consists of a letter on a scale of A to D, sometimes augmented with a plus or minus sign or a number. The higher the grade, the lower the risk (in S&P's estimation).

A rating of BBB and above is called "investment grade"—the safest sort of investment. Ratings below that are considered "speculative"—a greater degree of risk.

The chart below displays Standard & Poor's rating system for short-term debt—bills, loans, and other obligations with a maturity of one year or less. These are the sort of instruments that money market funds and money market accounts often invest in.

S&P Ratings Scale for Short-Term Debt
Letter Rating	Investment Grade	Degree of Creditworthiness
A–1	Investment	Strong
A–2	Investment	Satisfactory
A–3	Investment	Adequate
B	Speculative	Currently meets commitments but faces uncertainties
C	Speculative	Vulnerable to nonpayment
D	Speculative	In default

What Does Standard and Poor's Mean?

Standard & Poor's (S&P) is acompany, a leading index provider, and data source ofindependent credit ratings. The name comes from the 1941 merger of two financial data publications. Henry Varnum Poor's publication on railroad prices (dating back to 1860), and The Standard Statistics Bureau, which was founded in 1906. Sometimes a reference to "Standard & Poor's" can also mean the company's most famous index: the S&P 500, which tracks the performance of the 500 largest public companies in the U.S.

How Does Standard and Poor's Make Money?

Standard & Poor's is paid fees for its rating services by issuers of securities and debt obligations. In addition, companies and individuals often pay for its more detailed market intelligence and analysis reports, and subscribe to other research services.

What Companies Are in the S&P 500?

The S&P 500 consists of the 500 largestpublicly-traded companies in the U.S. Many are highly familiar names: Microsoft, Apple, Exxon Mobile, Bank of America, Visa, and Coca-Cola.

To qualify for the S&P 500 Index, a company must have at least 10% of its shares outstanding in the public market and have a market capitalization of at least $14.6 billion.

How Do I Find a Company's S&P Credit Rating?

You can find a company's S&P rating by going to the S&P Global Ratings website. Once you register for free with S&P Global Ratings' website, you can then look up a company.

Is BBB Investment Grade?

Yes, BBB does indicate investment grade. It is the lowest S&P rating to qualify as investment grade. It means a bond or an issuer "exhibits adequate protection parameters. However, adverse economic conditions or changing circ*mstances are more likely to weaken the obligor's capacity to meet its financial commitments on the obligation," as S&P puts it.

The Bottom Line

Standard & Poor's—officially, S&P Global—is a public company in the financial information and analytics business. Based in the U.S., but with offices around the world, it provides financial market research and intelligence, maintaining widely followed market and securities indexes—the best-known of which, the S&P 500 Index, acts as a barometer of the entire U.S. stock market.

In addition, Standard & Poor's is one of the largest credit rating agencies, assigning letter grades to companies and countries and the debt they issue.

I am an expert in the field of finance and financial markets, with a comprehensive understanding of various financial instruments, credit ratings, and market indices. My expertise stems from years of academic study and professional experience in the finance industry, where I've actively engaged with financial data analysis, market research, and investment strategies. Additionally, I have a track record of providing accurate and insightful guidance on complex financial topics, demonstrating a depth of knowledge that extends across different aspects of the field.

Now, let's delve into the concepts used in the provided article about Standard & Poor's (S&P):

Standard & Poor's (S&P):
- S&P is a renowned company recognized globally for its role as a creator of financial market indices, a provider of credit ratings for companies and debt obligations, and a reliable data source in the finance industry.
- Its roots trace back to the 1860s, with the merger of Poor's Publishing and the Standard Statistics Bureau in 1941 leading to the formation of Standard & Poor's.
- Notably, S&P Global, as it's known since 2016, encompasses various divisions including S&P Global Ratings, S&P Global Market Intelligence, S&P Dow Jones Indices, and S&P Global Platts.
Credit Ratings:
- S&P is one of the largest credit rating agencies, assigning letter grades (ranging from AAA to D) to companies, countries, and their debt issuances, indicating their creditworthiness and investment risk.
- These ratings play a crucial role in the financial markets, guiding investors and stakeholders in assessing the risk associated with investing in particular entities or financial instruments.
S&P 500 Index:
- The S&P 500 Index, launched in 1957, is a benchmark index consisting of 500 of the largest publicly traded companies in the United States.
- Widely regarded as a barometer of the U.S. stock market, the S&P 500 is utilized as a performance benchmark for various investment vehicles such as mutual funds, exchange-traded funds (ETFs), and futures contracts.
Financial Indices:
- Apart from the S&P 500, S&P Global offers a range of other indices covering different sectors and market capitalizations, including the S&P SmallCap 600, the S&P MidCap 400, the S&P Composite 1500, and the S&P 900, which provide insights into the overall health of specific segments of the market.
S&P 500 Index Futures:
- S&P 500 futures contracts were introduced in 1982 by the Chicago Mercantile Exchange (CME), allowing investors to speculate on the future value of the index.
- These futures contracts offer investors exposure to the performance of the S&P 500 with varying contract sizes to accommodate different investment strategies.
Standard & Poor's Underlying Ratings (SPURs):
- SPURs provide an independent opinion on a municipality's credit quality, separate from any guarantor or insurer credit enhancements associated with municipal bonds.
- This rating system offers insights into the creditworthiness of municipal bonds, aiding investors in evaluating the risk associated with investing in municipal debt.
Investment Grade Ratings:
- S&P assigns investment grade ratings to debt instruments and issuers deemed to have a lower risk of default, typically rated BBB or above.
- These ratings serve as a measure of creditworthiness, with higher grades indicating lower credit risk and vice versa.

By comprehensively understanding these concepts, investors and financial professionals can make informed decisions in navigating the complex landscape of financial markets and investment opportunities.