S&P 500 index mechanics and market significance

The S&P 500 is a market-capitalization-weighted index designed to measure the performance of large-cap US companies, covering approximately 80% of available US market capitalization. Rather than representing the price of a single share, the index level is a calculated number derived from the combined market value of its constituents, adjusted by a divisor.

While the index aims for 500 companies, it may contain more than 500 individual securities; for example, Alphabet is represented by two different classes of shares. To be included, companies must meet specific criteria, including a minimum market capitalization, sufficient liquidity, and positive GAAP net income in recent quarters.

As of late 2024, over $20 trillion in assets were indexed to or used the S&P 500 as a benchmark, with approximately $13 trillion attributed to passive investment. Because the index is weighted by market value, the price movements of the largest constituents have a disproportionately high impact on the overall index level.