What Is Standard & Poor's Corporation?

An in-depth look at Standard & Poor's Corporation, a subsidiary of McGraw-Hill, Inc., known for its investment services including securities ratings, stock indexes, and financial information.

Standard & Poor’s Corporation, commonly referred to as S&P, is a subsidiary of McGraw-Hill, Inc. It provides a broad range of investment services aimed at helping investors, market participants, and financial advisors make informed decisions. Known for its securities ratings, the company also compiles the Standard & Poor’s composite indexes of stocks and publishes an extensive array of statistical materials, investment advisory reports, and other essential financial information.

Securities Ratings

What are Securities Ratings?

Securities ratings are evaluations provided by independent agencies like Standard & Poor’s Corporation, which assess the creditworthiness of issuers of debt securities. This includes corporations, governments, and various financial entities. Ratings help investors understand the risks associated with a particular debt instrument.

Types of Ratings

• Credit Ratings: A measure of the issuer’s ability to repay its debt.

  • Investment Grade: Ratings from AAA to BBB-.
  • Non-Investment Grade: Ratings from BB+ to D, also known as “junk” status.

• Ratings Scales: Ratings are generally expressed on a scale ranging from AAA (highest) to D (default).

• Outlook and Watchlist: These indicate potential future changes in ratings (positive, negative, or stable).

Importance of S&P Ratings

Standard & Poor’s ratings play a crucial role in the global financial markets by providing transparency and assisting in pricing debt instruments. Investors rely on these ratings to assess the risk profiles of their investments, while issuers may use high ratings to attract a broader pool of investors.

Standard & Poor’s Composite Indexes

Overview of S&P Composite Indexes

The S&P composite indexes encompass a wide range of stock market indexes, including the well-known S&P 500 Index, which tracks the performance of 500 large companies listed on stock exchanges in the United States.

Key Indexes

• S&P 500: Tracks the largest 500 U.S. companies by market capitalization.
• S&P MidCap 400: Represents mid-sized U.S. companies.
• S&P SmallCap 600: Represents smaller U.S. companies.
• S&P Global 1200: Covers major global markets.

Business Applications of Indexes

• Portfolio Management: Investors use these indexes as benchmarks to compare performance.
• Strategic Asset Allocation: They aid in diversifying portfolios.
• Market Analysis: Analysts utilize these indexes to gauge sector performances and market trends.

Publishing Financial Information

Categories of Publications

• Statistical Materials: Monthly and annual reports that provide data on various economic indicators and market trends.
• Investment Advisory Reports: Analytical reports that offer insights and recommendations on market conditions, sectors, and individual securities.
• Financial Newsletters: Periodic publications that cover current market developments and financial news.

Utilization by Market Participants

• Institutional Investors: Use detailed reports for in-depth analysis.
• Individual Investors: Gain insights from advisory reports to make informed decisions.
• Financial Advisors: Rely on newsletters to stay updated with market trends.

Historical Context

Founding and Evolution

Standard & Poor’s originated from the merger of Poor’s Publishing, founded in 1860, and the Standard Statistics Bureau, established in 1906. It became a part of McGraw-Hill in 1966. Over the decades, it has grown to become one of the most respected names in the financial information industry.

Major Milestones

• 1941: Introduction of the S&P 500 Index.
• 1966: Acquisition by McGraw-Hill.
• 2001: Introduction of SPDR ETFs (Exchange-Traded Funds) tracking S&P indexes.

Related Terms

• Moody’s Corporation: Another prominent credit rating agency.
• Fitch Ratings: Provides credit ratings, similar to S&P.
• Bond Rating: A measure of the credit quality of a bond.
• Index Fund: A mutual fund or ETF designed to track an index.

FAQs

What is Standard & Poor's Corporation best known for?

S&P is best known for its credit ratings and the S&P 500 Index.

Why are S&P ratings important?

They provide an independent evaluation of the credit risk associated with debt securities and help investors make informed decisions.

How does S&P compile its indexes?

S&P uses market capitalization and liquidity as primary criteria for selecting components of its indexes.

Can individual investors access S&P publications?

Yes, many of S&P’s reports and publications are available to both institutional and individual investors.

References

1. McGraw-Hill Financial Inc. - Company History and Milestones.
2. “Guide to the S&P 500 Index” - Standard & Poor’s publication.
3. “Financial Markets and Institutions” by Frederic S. Mishkin.

Summary

Standard & Poor’s Corporation stands as a pillar in the financial services industry, providing critical ratings, comprehensive financial indexes, and invaluable investment reports. Its long history and broad range of services make it fundamental to both investors and market participants around the globe.