what is the s p 500 index 
the s p 500 index or standard poor s 500 index is a market capitalization weighted index of 500 leading publicly traded companies in the u s the index includes 503 components because three have two share classes listed it s not an exact list of the top 500 u s companies by market cap because the index includes other criteria the s p 500 index is nonetheless regarded as one of the best gauges of prominent american equities performance and the stock market overall investopedia julie bangweighting formula and calculation of the s p 500the s p 500 uses a market cap weighting method that gives a higher percentage allocation to companies with the largest market capitalizations 1determining the weighting of each component of the s p 500 begins with calculating the total market cap for the index by adding together the market cap of every company in the index the market cap of a company is calculated by taking the current stock price and multiplying it by the company s outstanding shares the total market cap for the s p 500 as well as the market caps of individual companies are published frequently on financial websites saving investors the need to calculate them the weighting of each company in the index is calculated by taking the company s market cap and dividing it by the total market cap of the index 2the s p 500 is a part of the s p global 1200 family of indices other indices include the s p midcap 400 which represents the mid cap range of companies and the s p smallcap 600 which represents small cap companies the s p 500 s p midcap 400 and s p smallcap 600 combine to cover 90 of all u s capitalization in an index known as the s p composite 1500 34s p 500 index constructionthe s p uses only free floating shares the shares that the public can trade when calculating market cap the s p adjusts each company s market cap to compensate for new share issues or company mergers the value of the index is calculated by totaling the adjusted market caps of each company and dividing the result by a divisor the divisor is proprietary information of the s p and isn t released to the public the s p index spx isn t a total return index and doesn t include cash dividend gains for the companies listed 5you can nonetheless calculate a company s weighting in the index and this can provide investors with valuable information you can get a sense as to whether it might have an impact on the overall index if a stock rises or falls a company with a 10 weighting would have a greater impact on the value of the index than a company with a 2 weighting the s p 500 is one of the most widely quoted american indexes because it represents the largest publicly traded corporations in the u s it focuses on the u s market s large cap sector and it s also a float weighted index which is a type of capitalization weighting company market caps are adjusted by the number of shares available for public trading 1the s p 500 s most recent rebalancing was announced on march 1 2024 and it took effect before the markets opened on march 18 2024 super micro computer and deckers outdoor replaced whirlpool corp and zions bancorporation n a respectively at that time 6s p 500 competitorsanother common u s stock market benchmark is the dow jones industrial average djia the s p 500 is often the institutional investor s preferred index given its depth and breadth the djia has historically been associated with significant equities from the retail investor s point of view institutional investors perceive the s p 500 as being more representative of u s equity markets because it includes more stocks across all sectors 500 versus the dow s 30 the s p 500 uses a market cap weighting method that gives a higher percentage allocation to companies with the largest market caps the djia is a price weighted index that gives companies with higher stock prices a higher index weighting the market cap weighted structure tends to be more common than the price weighted index across u s indexes 7nasdaq is a global electronic marketplace for trading securities several equity market indexes include stocks traded on nasdaq a given stock included in the s p 500 index may also be in one or more of the various nasdaq indexes some of the most watched nasdaq stock indices include the s p 500 is a member of a set of indexes created by standard poor s this set of indexes is like the russell index family in that both are market cap weighted unless stated otherwise as in the case of equal weighted indexes there are two significant differences between the construction of the s p and the russell families of indexes standard poor s chooses constituent companies via a committee russell indexes use a formula to select which stocks to include there s no name overlap within s p style indices such as growth versus value russell indexes will include the same company in both the value and growth style indexes 910the vanguard 500 index fund aims to track the price and yield performance of the s p 500 index by investing its total net assets in the stocks that make up the index and by holding each component with approximately the same weight as the s p index the fund barely deviates from the s p in this way which it s designed to mimic 11the s p 500 is an index so it can t be traded directly anyone who wants to invest in the companies that are included in the s p must invest in a mutual fund or exchange traded fund etf that tracks the index such as the vanguard 500 etf voo limitations of the s p 500 indexone of the limitations of the s p and other market cap weighted indexes occurs when stocks in the index become overvalued they rise higher than their fundamentals warrant the stock typically inflates the overall value or price of the index if it has a heavy weighting in the index while being overvalued a company s rising market cap isn t necessarily indicative of its fundamentals it simply reflects the stock s increase in value relative to the shares outstanding equal weighted indexes have become increasingly popular as a result each company s stock price movements have an equal impact on these indexes 12example of the s p 500 market cap weightingthe individual market weights must be calculated by dividing the market cap of each company by the total market cap of the index to understand how the underlying stocks affect the s p index here s an example of apple s weighting in the index the larger the market weight of a company the more impact each 1 change in a stock s price will have on the index s p doesn t provide the total list of all 503 components on its website just the top 10 