Economy
How are USA 500 Stocks Selected?
While USA 500 may include only a small section of publicly traded firms, there is no doubt that it is one of the most important indices in the United States stock market.
Approximately 500 companies in the S&P 500 make over 80% of the stock’s total value on the market. Therefore, it is an important indicator of how the local market is performing.
If you target trading USA 500 stocks, one of the main questions that you might have in your mind is, “How are the companies selected to join the exclusive list?” Everything comes down to meeting a number of rules set by the committee of investors, and we are going to look at some of them:
Market Capitalization
USA 500 was created to represent the largest companies in the US. So, size is an important parameter. The notion of “size” in the stock market means the selected company’s stock value or the total value of its shares (market capitalization).
Take the example of Apple Inc., an American multinational technology firm headquartered in Cupertino, California. In 2018, Apple made history as the first US firm to reach one trillion dollars in market capitalization, but Amazon’s and Microsoft’s also crossed the one trillion-mark by the end of the first quarter of 2019. By the close of September 2020, Apple’s shares were trading at about $115.
Another example is Coca Cola. The company has over 4.3 billion shares, which were trading at $41.9 by early October, meaning that its total market capitalization is about $180.1 billion.
The minimum market capitalization can move up or down, but the current number is $8.1 billion. Of course, this figure was way lower about 10 years ago, and you can expect it to continue increasing in the future.
Profitability
When investors look for stocks, they put a lot of emphasis on profitability. This is why USA 500 and USA 30 indices give a lot of weight to the selected firm’s profitability.
To gauge the profitability of a company, there are two methods that are used; checking the profitability of the firm over the last one year (four quarters) and in the most recent quarter.
However, how profitability plays is very dynamic. In theory, if a company loses $200 million in the first three quarters of a year and then makes a profit of $700 million in the third quarter, it would still be considered profitable.
When considering profitability, companies that have just gone public are required to show their trading history for the past 12 months. This means that if you have just concluded an IPO, it is impossible to immediately hop into the USA 500 Index, even with a high market capitalization.
A Company’s Liquidity and Float should be Easy to Check
The goal of USA 500 is to correctly track the companies with large capitalization that you can invest in. In addition to large capitalization, firms that are only owned by a few individuals (closely held) or those with little trading volume (thinly traded) are disqualified. So, here is how this rule is applied.
To get your company into the S&P 500, your business is required to have more than 50% of its stocks being traded on the stock exchanges. This is a correct assertion because a company with 60% of the shares owned by the founder is more private than another firm where owners only hold 40%.
Besides a firm being publicly owned, it also needs to be liquid to join the S&P 500 index. To achieve this, the company is required to have a trading volume of more than 100% and to have traded no less than 250,000 shares in the previous six months. This implies that if a company has two billion shares, all of them must be traded every year.
Most of the top-rated companies in the US meet these requirements with ease, and it is the reason why they are always on the list or get their way back after falling off.
Companies that Get Free Pass into the USA 500
From the requirements that we have listed above, it is clear that they are pretty stringent, but there are some companies that get a free pass. These are the stocks that are part of other top-rated indices, such as the S&P MidCap 400 and S&P SmallCap 600. These stocks are exempted from the rules of float, profitability, and liquidity.
The argument for exempting these stocks is that if your company is already part of the exempted indices, it will have met most of the requirements for listing on S&P 500. Therefore, if you have a company and want to get your way into the S&P 500, one of the methods is joining the exempted indices.
Some Companies Cannot Get into the USA 500
Notably, S&P 500 only considers standard incorporations and REITs (real estate investment trusts), so other forms of companies falling outside the two categories are excluded. For example, companies with exotic structures, such as master limited partnerships (MLPs) and business development companies (BDCs) are excluded. Limited liability companies, exchange-traded funds (ETFs), and closed-end funds (CEFs) are also excluded.
S&P Goes beyond the Rules!
Notably, meeting the basic rules to join S&P 500 is not enough to join the index! The index committee must also give the nod for your company to join as a way of filtering firms that might want to take advantage of the index.
The active involvement of the index committee makes S&P 500 more active compared to others. For instance, Russel 100 only requires a company to meet the rules without subjecting it to an active committee.
When the USA 500 index committee strategically adds or removes stocks, it helps to ensure that the index does not differ significantly from what is happening on the market.
To get a company to get listed on the index, therefore, it must be performing well and maintain an upward trend on the market to impress the committee.
In this post, we have looked at the stringent rules that companies need to meet to get listed on the USA 500 Index. So, if you are a new trader, USA 500 companies can be a good consideration.
By Dipo Olowookere
About 0.04 per cent was recovered on Friday from the loss recorded by the Nigerian Exchange (NGX) the previous due to profit-taking.
Yesterday, investors were in the market with renewed vigour, mopping up stocks trading at relatively cheaper prices.
According to data, the insurance counter gained 0.41 per cent, the banking sector appreciated by 0.38 per cent, and the consumer goods index grew by 0.14 per cent.
The gains achieved by these three sectors were enough to lift Customs Street at the close of business despite the 0.26 per cent decline printed by the industrial goods segment and the 0.14 per cent loss suffered by the energy industry. The commodity counter was flat during the session.
A total of 43 equities gained weight on the last trading day of this week, while 26 equities shed weight, indicating a positive market breadth index and strong investor sentiment.
Red Star Express increased its share price by 10.00 per cent to N13.20, NCR Nigeria grew by 9.97 per cent to N128.55, SCOA Nigeria inflated by 9.96 per cent to N14.90, Omatek appreciated by 9.94 per cent to N1.77, and Deap Capital expanded by 9.85 per cent to N4.46.
On the flip side, McNichols decreased by 8.81 per cent to N6.00, Legend Internet crumbled by 7.56 per cent to N5.50, Cornerstone Insurance crashed by 6.48 per cent to N6.35, C&I Leasing contracted by 6.29 per cent to N8.20, and Austin Laz slipped by 5.78 per cent to N3.75.
Yesterday, 539.9 million shares valued at N16.7 billion were transacted in 48,023 deals versus the 1.0 billion shares worth N31.6 billion executed in 51,227 deals in the preceding day, implying a shrink in the trading volume, value, and number of deals by 46.01 per cent, 47.15 per cent, and 6.26 per cent apiece.
Zenith Bank was the most active for the day with 54.6 million stocks sold for N3.8 billion, Jaiz Bank traded 41.5 million units worth N359.4 million, Secure Electronic Technology transacted 37.7 million units valued at N39.2 million, Access Holdings exchanged 30.5 million units for N699.2 million, and Lasaco Assurance transacted 27.2 million units worth N68.3 million.
When the market closed for the day, the All-Share Index (ASI) went up by 72.21 points to 166,129.50 points from 166,057.29 points and the market capitalisation gained N31 billion to N106.354 trillion from N106.323 trillion.
By Adedapo Adesanya
It was a positive ending for the Naira this week after it further appreciated against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, January 16 by N1.33 or 0.09 per cent to sell for N1,417.95/$1 compared with the previous day’s N1,419.28/$1.
The domestic currency also gained N2.41 against the Euro in the official market to close at N1,647.51/€1 versus the preceding session’s closing price of N1,649.92/€1, however, it suffered a N7.97 loss against the Pound Sterling in the same market window to trade at N1,901.32/£1, in contrast to Thursday’s closing price of N1,893.35/£1.
In the same vein, the Nigerian Naira depleted against the Dollar at the GTBank FX counter by N2 to quote at N1,427/$1 compared with the previous day’s N1,425/$1, but strengthened against the greenback at the black market yesterday by N5 to settle at N1,485/$1 versus the N1,490/$1 it was exchanged a day earlier.
Improved supply conditions helped keep the market within range as exporters’ and importers’ inflows in addition to non-bank corporate supply enhanced liquidity as the Central Bank of Nigeria (CBN) made no visible intervention.
Stronger external inflows from foreign portfolio investors (FPIs) and improving current account dynamics, continue to align with structural support in the wider economy.
Nigeria has seen projections of a stronger economic or gross domestic product (GDP) growth and lower inflation in 2026, with these forecasts citing improved macroeconomic fundamentals and reform impacts.
As for the cryptocurrency market, it was mixed following selloff in precious metals and lower US stocks appeared to be denting crypto sentiment.
Gold and silver, both of which also enjoyed big rallies earlier this week, tumbled 1.2 per cent and 5 per cent, respectively while key US stock indexes — the Nasdaq, S&P 500 and Dow Jones Industrial Average — all reversed from early gains to modest losses in Friday trade.
Dogecoin (DOGE) shrank by 2.2 per cent to $0.1370, Ripple (XRP) slipped by 0.8 per cent to $2.05, Ethereum (ETH) went down by 0.7 per cent to $3,228.56, and Bitcoin (BTC) slumped by 0.6 per cent to $95,086.80.
Conversely, Litecoin (LTC) appreciated by 3.2 per cent to $74.48, Solana (SOL) rose by 0.4 per cent to $143.70, Cardano (ADA) jumped by 0.2 per cent to $0.3942, and Binance Coin (BNB) increased by 0.1 per cent to $935.88, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
By Adedapo Adesanya
Oil prices settled higher amid lingering worries about a possible US military strike against Iran, a decision that may still occur over the weekend.
Brent crude settled at $64.13 a barrel after going up by 37 cents or 0.58 per cent and the US West Texas Intermediate (WTI) crude finished at $59.44 a barrel after it gained 25 cents or 0.42 per cent.
The US Navy’s aircraft carrier USS Abraham Lincoln was expected to arrive in the Persian Gulf next week after operating in the South China Sea.
Market analysts noted that it doesn’t seem likely anything will happen soon. However, the weekends have become the perfect time for actions so as not offset the markets.
The market had risen after protests flared up in Iran and US President Donald Trump signalled the potential for military strikes, but lost over 4 per cent on Thursday as the American president said Iran’s crackdown on the protesters was easing, allaying concerns of possible military action that could disrupt oil supplies.
Iran produces approximately 3.2 million barrels per day, accounting for roughly 4 per cent of global crude production, so it was not a coincidence that markets rallied sharply through Tuesday and Wednesday as President Trump canceled meetings with Iranian officials and posted that “help is on its way” to Iranian protesters, raising fears of potential US military strikes that sent prices surging toward multi-month highs.
Weighing against those fears are potential supply increases from Venezuela.
The Trump administration is exploring plans to swap heavy Venezuelan crude for US medium sour barrels that can actually go straight into Strategic Petroleum Reserve (SPR) caverns, since not all all oil belongs in the reserve.
According to Reuters, the Department of Energy is considering moving Venezuelan heavy crude into commercial storage at the Louisiana Offshore Oil Port, while US producers deliver medium sour crude into the SPR in exchange.
Analysts expect higher supply this year, potentially creating a ceiling for the geopolitical risk premium on prices.
Some investors covered short positions ahead of the three-day Martin Luther King holiday weekend in the US.
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