S&P Redefines What a Large Cap Stock Is
A large cap stock is one that has a large amount of capital. With stock market values falling like crazy, this means that there needs to be a re-evaluation about what a large cap stock is.
At least Standard and Poors (S&P) thinks so.
S&P is issuing a new set of guidelines to define a large cap stock. MarketWatch reports on the change in the large cap stock definition:
For large-cap stocks, reflected by the S&P 500, the value was cut to $3 billion from $4 billion. The firm set the $4 billion mark on September 25.
The requirements for the S&P MidCap 400 were cut to a range of $750 million to $3.3 billion, down from the $1 billion to $4.5 billion set in September. And small-caps also got smaller, with a new range for the S&P SmallCap 600 of $200 million to $ 1 billion, a cut from the previous range of $250 million to $1.5 billion.
This is actually a rather quick move, since S&P had just redefined a large cap stock in September. The redefinitions illustrate the rapid drops in the stock market. BloggingStocks points out that some investors may be hurt by all this switching around:
Changing the definition may actually hurt some investors. There are still plenty of companies that have market caps above $4 billion or even $5 billion. There is a sense that the stocks in these firms are “safer” than other equities. …
Being a large cap stock actually means something, even if it is only by having balance sheet that is likely to be healthier than many others.
The S&P action will probably confuse some investors in an already confusing market.
It is time to go careful. Maybe capitalization is not the only thing you should go with. Look at other fundamentals when making your decisions, and do your best to ride this storm out.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
