A:

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.

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