What Is the S&P 500?
The index that tracks 500 large US companies, how it's built, and why it's the most-watched benchmark in investing.
⏱️ ~7 min read
Key Takeaways
- The S&P 500 tracks roughly 500 large US companies selected by a committee based on size, liquidity, and other criteria
- It's a market-capitalization-weighted index — bigger companies have a bigger influence on its value
- It's widely used as the benchmark for 'the US stock market' and for judging how well other investments perform
- You can't buy the S&P 500 directly, but index funds and ETFs let you invest in something that closely tracks it
An index is a scorecard, not a stock
The S&P 500 (formally the Standard & Poor's 500) is a stock market index — a single number calculated from the combined value of about 500 large publicly traded US companies, designed to represent the overall performance of the US large-cap stock market.
It's maintained by S&P Dow Jones Indices, which selects and periodically adjusts the list of companies included based on criteria like market capitalization, liquidity, profitability, and US domicile. Companies are added and removed over time as they grow, shrink, merge, or no longer meet the criteria.
How the index value is calculated: market-cap weighting
The S&P 500 is 'market-cap weighted,' meaning each company's influence on the index is proportional to its total market value (share price × shares outstanding), specifically the portion of shares available for public trading (the 'float').
This means the largest companies in the index — often a handful of major technology firms — can have an outsized effect on the index's daily movement compared to smaller constituents, even though each company is just '1 of 500' by count.
Example: Weighting in action
Suppose the entire S&P 500's combined float-adjusted market cap is $40 trillion.
A company with a float-adjusted market cap of $2.8 trillion would have a weight of $2.8T ÷ $40T = 7% of the index.
A company with a float-adjusted market cap of $40 billion would have a weight of $40B ÷ $40T = 0.1%.
If the 7%-weight company rises 10% on a day when everything else is flat, the index as a whole would rise roughly 0.7% — much more impact than the 0.1%-weight company moving by the same percentage.
Why it's the benchmark everyone talks about
When financial news says 'the market was up today,' they usually mean the S&P 500. It's used as the standard for comparison ('benchmark') for a huge share of US mutual funds, ETFs, and individual portfolios — if a fund manager's portfolio returns less than the S&P 500 over time, that's often considered underperformance, even if the absolute return was positive.
Its broad composition (about 500 companies across all major sectors) makes it a reasonable proxy for 'how is corporate America doing' in a way that a narrower index, like the 30-stock Dow Jones Industrial Average, can't quite match.
How to actually invest in it
You can't buy 'the S&P 500' directly — it's just a calculation. But you can buy index funds or ETFs designed to track it as closely as possible by holding all (or a representative sample) of its constituent stocks in the same proportions.
These funds have become enormously popular because they offer instant diversification across 500 companies, very low fees, and returns that have historically been difficult for most active investors to beat consistently over long periods.
Frequently Asked Questions
Is the S&P 500 the same as 'the stock market'?+
It's a widely used proxy for the US large-cap stock market, but it doesn't include small-cap stocks, most international stocks, or bonds — 'the market' as a whole is much broader.
How often does the list of 500 companies change?+
Changes happen periodically throughout the year as companies are added or removed due to mergers, bankruptcies, spinoffs, or no longer meeting the index criteria — there's no fixed schedule, but dramatic full-list overhauls are rare.
Can the S&P 500 go down even if most of its companies are doing fine?+
Yes, in theory — because of cap-weighting, a sharp decline in just a few of the largest companies can pull the overall index down even if many smaller constituents are stable or rising.