S&P 500

The S&P 500 is a stock market index that tracks roughly 500 of the largest companies listed in the United States, selected by a committee at S&P Dow Jones Indices and weighted by float-adjusted market capitalization. Launched in its current form in 1957, it covers about 80% of the value of the US equity market, which has made "the market" and "the S&P" near-synonyms in financial conversation.

Key takeaways

• Inclusion requires, among other things, US domicile, sufficient liquidity and positive recent earnings; the committee keeps discretion.
• Weighting is by float-adjusted market cap: the biggest companies move the index most.
• Trillions of dollars in index funds and derivatives track the index directly.
• The index level ignores dividends; total-return variants include them.

Cap-weighting and concentration

Because weights follow market value, the index's character shifts with its leaders. Concentration at the top has reached historic highs in the 2020s: by 2024 the ten largest constituents accounted for more than a third of the entire index, the highest share in over 50 years, dominated by a handful of technology firms. A cap-weighted index buys nothing and sells nothing when prices change (weights adjust automatically), which keeps turnover and costs low; the flip side is that holders own the most of whatever has already grown the largest.

In and out

The committee reviews membership quarterly. Additions are announced days in advance, historically producing a brief "index effect" on the entering stock's price as tracking funds buy in (an effect academic work finds has weakened as markets adapted). Failures and takeovers exit; Tesla's 2020 addition, at the time the largest company ever added, illustrated the scale such events can reach.

Why it became the benchmark

Three reasons recur: breadth (it represents most of the US market's value), longevity (price history extends back decades, with reconstructed data to 1926 via its predecessor indexes), and investability (cheap funds track it almost perfectly). When fund performance is measured, the S&P 500 is the default yardstick, which is precisely the comparison most US active funds fail over long horizons (see index fund).

Frequently asked questions

Are there exactly 500 companies in it?

Roughly. Some companies have multiple share classes counted separately, so the number of constituents hovers slightly above 500 (503 in recent years).

Is the S&P 500 "the market"?

It is a large slice of one country's market. It excludes small companies, non-US markets and other asset classes entirely; world indexes such as MSCI World cast a wider net.

What is the difference with the Dow Jones?

The Dow contains 30 companies and weights them by share price, an arithmetic quirk from 1896 that survives for tradition. The S&P 500's breadth and cap-weighting make it the more representative measure.

Sources

• S&P Dow Jones Indices, S&P 500 factsheet and methodology
• S&P Global, Index concentration research
• FRED, S&P 500 historical data