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What is the 'Standard & Poor's 500 Index - S&P 500'

The Standard & Poor's 500 Index (S&P 500) is an index of 505 stocks issued by 500 large companies with market capitalizations of at least $6.1 billion. It is seen as a leading indicator of U.S. equities and a reflection of the performance of the large-cap universe. The S&P 500 is a market value-weighted index and one of the common benchmarks for the U.S. stock market; other S&P indexes include one of small-cap companies with market capitalizations between $450 million and $2.1 billion and another made up of mid-cap companies with market capitalizations between $1.6 billion and $6.8 billion. Investment products based on the S&P 500 include index funds and exchange-traded funds. The SPDR S&P 500 (SPY) is the largest ETF in the world with net assets of $252 billion.

BREAKING DOWN 'Standard & Poor's 500 Index - S&P 500'

The S&P 500 is widely regarded as the most accurate gauge of the performance of large-cap American equities. While the S&P 500 focuses on the large-cap sector of the market, it is considered representative of the entire market because it includes a significant portion of the total value of the market.  The companies included in the S&P 500 are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor's. These experts consider various factors when determining the stocks that are included in the index, including market size, liquidity and industry grouping. The five companies with the highest weights in the S&P 500 are Apple Inc. (AAPL), Alphabet (GOOG), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN) and Facebook Inc. (FB), and the five companies with the lowest weight in the index are Envision Holdings (EVHC), Navient cp (NAVI), Patterson Companies (PDCO), Footlocker Inc. (FL) and Chesapeake Energy Corp. (CHK).

S&P 500 Significance

The S&P 500 has become a preferred index for U.S. stocks, unseating the Dow Jones Industrial Average (DJIA). The S&P 500 is perceived as more representative of the market because it is made up of significantly more companies than the DJIA’s 30. There is also a major difference in how companies are represented in either index. The S&P 500 uses a market cap methodology, giving a higher weighting to larger companies, whereas the DJIA uses a price weighting methodology which gives more expensive stocks a higher weighting. The market cap ranking is also seen as more representative of real market structure.

S&P 500 Investment Options

Investors have difficulty replicating the S&P 500 because a portfolio needs stocks of 500 companies in specific quantities to replicate the index's market cap methodology. For investors looking to replicate the S&P 500, it is easier to purchase one of the S&P 500 investment products such as the Vanguard S&P 500 ETF, the SPDR S&P 500 ETF or iShares S&P 500 Index ETF.

Other S&P Indices

The S&P 500 is a member of the S&P Global 1200 family of indices. Other popular indices include the S&P MidCap 400, which represents the mid-cap range of companies; the S&P SmallCap 600 represents small-cap companies. The S&P 500, the S&P MidCap 400 and the S&P SmallCap 600 are combined and calculated together as the S&P Composite 1500.

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