S&P 500 Companies Explained

The S&P 500 companies are roughly 500 of the largest businesses listed in the United States, and together they form the index most people mean when they say "the market is up today". This guide explains how companies are selected, why a handful of them carry so much weight, how to read the index during the day and how investors gain exposure to it. As always, we name no shares to buy.

Who decides which S&P 500 companies are included

The index is maintained by S&P Dow Jones Indices. Unlike some indices that simply take the largest companies by a formula, membership is decided by an index committee applying published rules. To be considered, a company generally needs to:

• be based in the United States and listed on an eligible US exchange;
• be large, above a market-value threshold that the committee reviews from time to time;
• have enough shares available to the public and trade actively enough;
• be profitable, with positive earnings over its most recent four quarters combined and in the latest quarter.

Meeting the rules does not guarantee entry, because the committee also considers sector balance. Changes happen whenever needed, for example after a takeover, and the index is rebalanced quarterly. The count of share lines is usually a little above 500, because a few companies have more than one class of stock in the index.

How the weighting works

Each company counts in proportion to its float-adjusted market capitalisation: its share price multiplied by the number of shares available to public investors. The larger the company, the larger its influence.

Imagine a simplified, illustrative index of three companies worth $3,000 billion, $1,000 billion and $100 billion, a total of $4,100 billion. Their weights would be about 73.2%, 24.4% and 2.4%. If the largest rises 2% and the smallest rises 10% while the middle one stands still, the index gains about 1.7%: the big company's modest move matters far more than the small company's jump.

The real index works the same way. In recent years a small group of very large technology-related companies has accounted for a big share of its value, so their results can move the whole index. That is worth knowing when you read that "the market" rose or fell.

Sectors inside the index

Every member is classified into one of 11 sectors under the Global Industry Classification Standard, including information technology, health care, financials, consumer discretionary, industrials, communication services, consumer staples, energy, utilities, real estate and materials. Sector weights shift over time as some industries grow faster than others, and they tell you what you are really exposed to when you own an S&P 500 fund.

Reading the S&P 500 today

When a headline reports the S&P 500 today, it usually gives the index level, the change in points and the change in percent. Points mean little on their own; percentages are what matter. With illustrative numbers, a rise of 45 points from 6,000 is 45 ÷ 6,000 = 0.75%.

The index is calculated during the regular US session, 09:30 to 16:00 New York time. An S&P 500 live quote outside those hours is either the last closing level or, more often, a futures price, which trades almost around the clock and is explained in our guide to US futures. Free quote pages may also be delayed by several minutes, so check the time stamp before drawing conclusions.

Another distinction: the headline index is a price index and ignores dividends. A total return version assumes dividends are reinvested. Over long periods the gap between the two becomes large, which is why fund performance is usually compared with total return.

How people invest in the S&P 500

You cannot buy an index directly. Investors gain exposure through:

• Index mutual funds and ETFs that hold the member companies in index proportions. The main costs are the fund's ongoing charge and any platform fee; see our fees guide.
• Futures and options, which are leveraged derivatives used mainly by professionals.
• CFDs or spread bets on the index, offered in some countries and also leveraged. UK and EU retail leverage on major indices is capped at 20:1.

For most long-term investors, a low-cost fund is the straightforward route. Funds tracking the same index can still differ in charges, currency, whether they pay out or reinvest dividends, and how closely they follow the index.

What the S&P 500 is not

It is not the whole US market: smaller companies are left out, and the Nasdaq Composite, Dow Jones Industrial Average and broader total-market indices measure things differently. The Dow, for instance, follows only 30 companies and weights them by share price. It is also not a list of the "best" companies, just large, profitable, liquid ones that the committee selected. For the basics of how shares themselves work, start with our stock market guide.

Sources

• S&P Dow Jones Indices, S&P U.S. Indices methodology
• MSCI and S&P Dow Jones Indices, Global Industry Classification Standard (GICS)
• UK Financial Conduct Authority, CFD leverage limits for retail clients