The stock market notched another record. Three weeks after the Dow Jones industrial averageSilverblatt blew past its previous peak, the broader Standard & Poor’s 500 index joined it in the history books.
The S&P 500 closed Thursday at 1,569.19, topping its record, set in 2007, by four points.
The S&P 500 generates fewer headlines than the Dow, its older sibling, but it’s the market gauge favored by professional investors. That’s largely because it covers a wider swath of companies — 500 as opposed to 30.
Q. What’s driving the stock market to a new high?
A. Since the S&P 500 bottomed out in March 2009, the economy has pulled out of a recession and started growing. Companies are making record profits and hiring more, and the housing market is finally recovering. The economy has expanded for 14 quarters in a row.
The Fed has helped by keeping interest rates near record lows, encouraging people to move money out of savings accounts that pay next to nothing and into stocks and other investments.
Pundits often argue the Fed has created the illusion of a strong stock market. But that misses the big picture, says Mark Luschini, chief investment strategist at Janney Montgomery Scott. People buy a stock to own a share of the company’s profits, and those profits keep climbing. Earnings for the S&P 500 hit $103 per share last year. That’s up from $84 in 2007 and $61 in 2009.
‘‘This isn’t all smoke and mirrors,’’ Luschini says. ‘‘Corporate profits are at all-time highs.’’
Q. What about inflation?
A. When inflation is taken into account, the S&P 500 is still far from its peak. On March 24, 2000, the index hit 1,527. With inflation added to it, that peak works out to 2,065, according to JPMorgan Chase.
Q. The Dow hit a record three weeks ago. What’s the difference between the two indexes?
A. The S&P 500 takes a company’s market value into account. That means the most valuable companies in the index — Exxon Mobil and Apple — can move the index more than smaller companies like Avon Products and Hormel Foods.
The Dow takes a company’s stock price into account. Every change of $1 in any of the 30 Dow stocks moves the index by the same number of points, roughly seven. That gives more sway to companies with higher stock prices. It’s easier for a $100 stock to rise $1 than it is for a $10 stock.
As a result, the oil giant Exxon Mobil, with a $406 billion market value, has less influence on the Dow than Chevron, with $233 billion. Why? One share of Exxon sells for $91, while one share of Chevron sells for $120.
Q. Why should I care about what happens to the S&P 500?
A. If there’s a US stock mutual fund in your retirement account, it’s probably tied to it. More funds and more money chase after the S&P 500 than any other US stock index. It’s the most widely used yardstick for money managers who pick and choose stocks, as well as for index funds, which simply try to mirror an index, says Michelle Swartzentruber, a research analyst at Morningstar. Some 1,359 funds worth $2.8 trillion track the S&P.
The Dow has six followers worth $142 million.
The index is also popular with investors in exchange-traded funds. The largest ETF is the SPDR S&P 500, with $131 billion.
Q. Which index do professional investors follow?
A. For anyone working in financial markets the S&P 500 is the main barometer. It’s built to mirror the overall stock market and is often used as a measure of how well the economy is doing.
‘‘Anyone in our business uses the S&P,’’ Luschini says. ‘‘Nobody uses the Dow. On any given day, if you stopped me on the street to ask where the Dow was trading, I couldn’t tell you.”
Q. Why did it take the S&P 500 longer to break its record?
A. Mainly, the answer is math. A single actor plays a larger role in a cast of 30 than in a cast of 500. The Dow’s success owes a lot to one stock — IBM — because of its high price. Since March 9, 2009, when IBM closed at $83, its stock has gained 155 percent, shouldering a tenth of the Dow’s gain, says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
It’s a different story in the S&P 500, where Big Blue’s $237 billion market value gives it less than 2 percent of the index. Even mighty IBM isn’t strong enough to carry 500 companies worth $14 trillion.
Q. What about Apple’s recent struggles? Have they held the index back?
A. Yes. Apple is just one of 500 companies in the index, but it’s still big enough, and its slump is bad enough, to weigh it down. Since crossing above $700 last September, Apple’s stock has dropped 37 percent to $442.
Silverblatt calculated that if Apple had been trading at $650, the S&P 500 would have topped its record high on March 5, the same day the Dow cleared its old mark.
Q. Which industries have powered the index up since 2009?
A. The answer shows just how nervous everybody was during the financial crisis. Back then, investors ditched banks as well as companies selling cars, jewelry, and other goods people stop buying if they’re worried about money. Since March 2009, banks have gained 212 percent, according to FactSet data. Those so-called consumer-discretionary companies have gained even more.
Q. Which S&P 500 company has done best since the market bottom?
A.Wyndham Worldwide, a manager of hotels and resorts, has had the best run over the past four years — by far. Wyndham’s stock has soared 2,130 percent since 2009, according to FactSet. That surge tracked the company’s turnaround. In 2008, Wyndham lost $1 billion. Over the past year, it has posted a $400 million profit.
Q. What about the losers?
A. Some companies are in worse shape than during the dark days. First Solar has lost 75 percent since March 2009. The once-popular maker of thin-film solar panels has faced a growing crowd of competitors and prices for solar panels have plunged.
Apollo Group comes in a close second, down 74 percent. Scandals at for-profit schools led to tighter government scrutiny and falling enrollments at Apollo’s University of Phoenix.
Q. How many companies have been removed from the S&P 500?
A. Since March 2009, a total of 79 have dropped out — often because they have been bought by another member of the 500 club. But S&P will also pull a company if its market value has shrunk drastically or if it doesn’t have enough publicly traded shares.
Sears, Roebuck was in the index at the beginning, in 1957. In August, it lost its spot to LyondellBassell. On Dec. 17, 2010, Eastman Kodak and The New York Times Co. were unseated by Newfield Exploration and F5 Networks.
Q: What are other highlights and lowlights for the S&P?
A. The index started at 44.06 on March 4, 1957, and broke 1,000 on Feb. 2, 1998. Its worst day was Oct. 19, 1987, in Black Monday’s panic selling. The index plunged 21 percent to 224.84.
In points, the biggest one-day loss was in the depths of the financial crisis, on Sept. 29, 2008— down 9 percent to 1,106.39.