S&P 500 components are weighted by free float market capitalization. Larger companies affect the value of the index to a greater degree.

For example, as of March 2015, the sum of the market capitalizations of the companies in the S&P 500 was $18.5 trillion. The largest member of the index was Apple at $720 billion. In contrast, the smallest member of the S&P 500 was Diamond Offshore Drilling, with a value of $3.65 billion.

Changes in Apple's stock price affect the overall index by almost 200 times more than Diamond Offshore Drilling. Due to its size, Apple makes up almost 4% of the index, while Diamond Offshore Drilling accounts for 0.02% of the index.

It is interesting and useful to compare the performance of the market cap-weighted S&P 500 to the equal-weighted S&P 500. In the equal-weighted version, each component is given an equal weighting of 0.2%. Both indexes move together in the same direction for the most part, but by different magnitudes. The relative performance of these indexes reflects liquidity and market conditions amongst investors.

The components of the S&P 500 are chosen by a committee at Dow Jones S&P Indices with the goal of reflecting the overall economy. Companies are added or dropped from the index based on changes in the economy.

The intention of the S&P 500 is to provide an understanding of how the stock market and economy are performing at a quick glance. The S&P 500 is considered to be superior to the Dow Jones Industrial Average (DJIA), which the mainstream media and public use to assess the stock market.

  1. How is the value of the S&P 500 calculated?

    The S&P 500 is a U.S. market index that gives investors an idea of the overall movement in the U.S. equity market. The value ... Read Answer >>
  2. What is the history of the S&P 500?

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  3. Where can I find a list of all of the stocks in the S&P 500?

    The actual list of all 500 stocks in the S&P 500 is called the Constituent List. It can be found on the official Standard ... Read Answer >>
  4. How many components are listed on the Dow Jones Industrial Average?

    Learn how many components comprise the Dow Jones Industrial Average and understand the stock index's origins and how it is ... Read Answer >>
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