Standard and Poor's (S&P)
What Is Standard and Poor's (S&P)?
Standard and Poor's (S&P) is a company well referred to 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 famous and often-cited S&P 500 Index. The company's underlying foundations date back to the 1860s. Since 2016, its official corporate name has been S&P Global.
Understanding Standard and Poor's (S&P)
Standard and 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 most memorable stock market indicator, which contained 233 companies. Unfortunate's Publishing, meanwhile, issued its most memorable rating in 1916.
The two firms merged in 1941, to create Standard and Poor's.
The McGraw-Hill Cos. purchased S&P in 1966. In 2012, Standard and 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, and more than 1 million credit ratings have been issued on governments, corporations, the financial sector, and securities.
S&P is a major credit risk researcher, covering multiple industries, benchmarks, asset classes, and geographies. It issues credit ratings, going from AAA to D, on public and private company debt, as well as governments. It likewise 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 Business Services.
Standard and Poor's Indexes
The S&P 500 Index launched in March 1957. It was the main index to be computer-generated and to be published daily and has become a substitute 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 device to gauge the overall health of large American companies. The S&P 500 is likely the single most famous 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 famous 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 glance at market health based on its sub-sector.
S&P 500 Index Futures
The main S&P 500 futures contracts were 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 the E-mini contract — valued at $50 times the S&P 500 — in 1997 to consider smaller investments by a wider range of investors. Furthermore, the even smaller micro E-mini, with a multiplier of just $5, was introduced in 2019.
The "E" in E-mini represents electronic, a reflection of the way 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. Numerous traders favored the E-mini over the standard contract for its smaller investment size as well as for its liquidity. Consequently, CME delisted the standard contract in September 2021.
Likewise with all futures, investors are simply required to front a small portion of the contract value to take a position. This represents the edge on the futures contract. These edges are not the same as edges for stock trading. Futures edges show "dog in the fight" that must be offset or settled.
Standard and Poor's Underlying Ratings (SPURs)
Standard and Poor's Underlying Ratings (SPURs) provide an assessment on a municipality's credit quality separate from guarantor or insurer credit enhancements. Municipal or other public sector bonds normally include credit enhancement which is used to get better terms by giving increased assurance that the borrower will respect its obligation through extra insurance or a third-party guarantee. Standard and Poor's issues a SPURs rating just at the request of the issuer/obligor and keeps up with surveillance of an issue with a published SPUR.
Example of Standard and Poor's Ratings
Standard and Poor's Global Ratings division positions debt instruments, like bonds, and the companies that issue them, in terms of creditworthiness — defined as the likelihood of default or failure to pay debts in a timely manner. Like academic grades, each rating comprises 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 or more is called "investment grade" — the safest kind of investment. Ratings below that are considered "speculative" — a greater degree of risk.
The chart below shows Standard and Poor's rating system for short-term debt — bills, loans, and other obligations with a maturity of one year or less. These are the kind 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|
|B||Speculative||Currently meets commitments but faces uncertainties|
|C||Speculative||Vulnerable to nonpayment|
Standard and Poor's — officially, S&P Global — is a public company in the financial data and analytics business. Based in the U.S., yet with offices around the world, it provides financial market research and intelligence, keeping up with widely followed market and securities indexes — the best-known about which, the S&P 500 Index, acts as a barometer of the entire U.S. stock market.
Also, Standard and Poor's is one of the largest credit rating agencies, allotting letter grades to companies and countries and the debt they issue.
- Standard and Poor's is one of the largest credit rating agencies, relegating letter grades to companies and countries and the debt they issue on a scale of AAA to D, showing their degree of investment risk.
- The S&P 500 is the basis for some investments, including futures contracts, mutual funds, and ETFs.
- Standard and Poor's (S&P) is a leading index provider and data source of independent credit ratings.
- The famous S&P 500 Index is perhaps Standard and Poor's best-known product.
- The McGraw-Hill Cos. purchased S&P in 1966, and in 2016, the company became known as S&P Global.
What Does Standard and Poor's Mean?
Standard and Poor's (S&P) is a company, a leading index provider, and data source of independent 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 and Poor's" can likewise mean the company's most well known index: the S&P 500, which tracks the performance of the 500 largest public companies in the U.S.
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 fore free with S&P Global Ratings' web site, you can then look into a company.
What Companies Are in the S&P 500?
The S&P 500 comprises of the 500 largest publicly-traded companies in the U.S. Many are exceptionally natural names: Microsoft, Apple, Exxon Mobile, Bank of America, Visa, and Coca-Cola.To meet all requirements for the S&P 500 Index, a company must have no less than 10% of its shares outstanding in the public market and have a market capitalization of no less than $13.1 billion.
How Does Standard and Poor's Make Money?
Standard and Poor's is paid fees for its rating services by issuers of securities and debt obligations. Likewise, companies and people often pay for its more detailed market intelligence and analysis reports, and subscribe to other research services.
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 circumstances are more likely to weaken the obligor's capacity to meet its financial commitments on the obligation," as S&P puts it.