Standard and Poor's (S&P)

Publication Date :

28 Mar, 2024

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Table Of Contents

Standard And Poor's vs Moody's

Standard & Poor's and Moody's are two prominent companies focusing on credit rating and financial market analysis. They are different from one another in the following ways:

Basis	Standard and Poor’s	Moody’s
1. Definition	The S&P is a world leader in releasing the credit ratings of companies and debt instruments, while it even facilitates investment benchmarking by making the financial market indices.	Moody's is a credit risk analysis firm that assigns credit ratings and debt obligations like bonds to companies.
2. Measures	Default Probability	Overall expected losses in credit offering, including the default probability.
3. Rating Pattern	The ratings are expressed in uppercase letters with positive and negative signs.	The ratings are denoted in both uppercase and lowercase letters with numbers.
4. Highest Rating	AAA	Aaa
5. Lowest Rating	D	C
6. Other Rating Examples	AA+, AA, AA-, BBB+, BBB, BBB-, B+, B, B-, CCC+, CCC, CCC-, CC	Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C
7. Specializes in	Corporate bond rating	Sovereign debt rating

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

Standard & Poor's (S&P) is a leading public company that facilitates financial market analysis and serves as a data source. Moreover, it establishes financial market indices to be used as benchmarks for investing. It also promulgates the creditworthiness and debt obligations of companies, and nations by releasing their credit ratings.

The S&P has been functional under S&P Global since 2016. It analyzes published information on companies, countries, and debt instruments to rate their potential risk and credibility. Some of the major clients of the S&P company include government agencies, universities, corporations, and investment professionals, to whom it offers top-notch research and analysis services, news, and financial and industrial data.

Key Takeaways

The Standard and Poor's (S&P) is an American public corporation that excels in financial market analysis and financial information. It is functioning under S&P Global since 2016.
It performs various functions, including credit rating issuance for companies, countries, and debt obligations; forming market indexes for serving as benchmarks; and providing financial data to clients.
The S&P credit rating scale ranges from AAA to D, grading investment opportunities or companies in uppercase letters with + or - signs.
The various investment benchmarks of S&P are the S&P 500, SmallCap 600, MidCap 400, and S&P Composite 1500 indices.

Standard & Poor's Explained

Standard and Poor's (S&P) is a financial intelligence company facilitating financial market analysis for companies, countries, and debt instruments. The company earns money by issuing credit ratings of debt obligations and other securities issued by its clients, namely corporations, government agencies, investment professionals, and universities. It also earns income by providing curated data on financial markets, research and analysis, industries, etc.

Started as an American public company, S&P has expanded its operations globally, becoming renowned as a pioneer in the financial data and analytic sector after becoming a part of S&P Global in 2016. It is acknowledged as one of the world's three leading credit rating agencies, along with Fitch and Moody's. S&P forms its opinion over a company's or debt instrument's credit rating by analyzing the issuing company's financial information gathered from internal sources or management. It even studies the company's published reports to determine its financial health, operational efficiency, and repayment capacity.

History

Standard & Poor's (S&P) origin can be traced back to 1860 when Henry Varnum Poor founded an independent financial analysis firm and wrote an influential book on the U.S. railroad industry. The Standard and Poor's was officially formed with the merger of Standard Statistics and Poor's Publishing in 1941. The Standard Statistics Bureau was a financial analysis company established in 1906. Initially concentrated on financial analysis, the company expanded its services to include credit ratings, investment research, and market analysis.

The entity is dedicated to delivering essential financial information and underwent a rebranding to S&P Global in 2016. S&P Global has a diverse portfolio of divisions, including S&P Global Ratings, S&P Global Market Intelligence, S&P Dow Jones Indices, and S&P Global Platts. Today, S&P functions as a subsidiary of S&P Global Inc., pioneering the financial market intelligence, especially the formation of stock market indices such as the S&P 500.

Indexes & Credit Ratings

The Standard and Poor's indices are widely employed by investors as benchmarks for measuring the performance of a particular fund or company and for developing a diversified investment strategy. Let us discuss these Dow Jones indices in detail below:

S&P 500 Index: The Standard and Poor's 500 index is a benchmark formed by considering the market-capitalization-weighted index of 500 of the U.S. largest publicly traded companies, selected by their market capitalization, including sectors and liquidity. Indeed, it is the best large-cap U.S. equity index renowned globally.
SmallCap 600 Index: The S&P SmallCap 600 index concentrates on the U.S. equity market's small-cap companies. The benchmark includes only financially sound and investable companies.
MidCap 400 Index: This index focuses on the equity of U.S. mid-sized companies with a high growth potential and promises greater stability than small-cap stocks.
S&P Composite 1500 Index: This Standard and Poor's Composite index, as the name suggests, represents a broad market index comprising all those securities or companies included in the above 3 indices, I.e., S&P 500, S&P MidCap 400, and S&P SmallCap 600.

The S&P credit ratings involve uppercase letters and + or - signs. Given below is a table of its ratings and its credit quality significance or description:

Credit Rating	Description
AAA	Prime - Highest credit quality and lowest credit risk
AA+, AA, AA-	Very High - Very high credit quality and very low credit risk
A+, A, A-	Upper Medium - High credit quality and low credit risk
BBB+, BBB, BBB-	Lower Medium - Good credit quality and currently low credit risk
BB+, BB, BB-	Non-Investment/Speculative - The issuer has significant uncertainties and adverse circumstances
B+, B, B-	Highly Speculative - High credit risk, but issuer fulfills financial obligations
CCC+	Substantial Risk - Very high credit risk, high chances of default
CCC	Extremely Speculative - Vulnerable and default likely
CCC-, CC, C	Default Imminent - Extremely vulnerable, on the verge of default
D	In-Default - Defaulting all of its financial obligations

Examples

Let us check out the significance of Standard and Poor's in investing and finance through the following examples:

Example #1

According to a report of Seeking Alpha, dated November 25, 2023, the S&P rating for Abbott Laboratories is AA-. Its ABT stocks are an example of a stable investment opportunity, while the company has sustained many economic downturns in the past. Moreover, the stock has demonstrated a high performance and impressive growth even after the temporary downtrends. The ABT stock has a diversified healthcare portfolio, including sectors like pharmaceuticals, diagnostics, and medical devices.

Example #2

The Standard and Poor's 500 stock index is an important element to compare the performance of hedge funds. In recent years, hedge funds employing multistrategy approaches have gained attention for their ability to navigate volatile markets. While some of these funds continued to perform well in 2023, they struggled to match the soaring returns of benchmarks like the S&P 500.

For example, Citadel's flagship Wellington fund gained 15.3%, and Millennium Management saw a 10% increase. However, the average multistrategy fund only gained 4.9%, trailing behind the S&P 500 and traditional hedge funds. As the performance of multistrategy funds fluctuates, 2024 is an essential year to monitor their strategies and outcomes.