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What is the S&P 500?

2 mins | Beginnner

What it is

The S&P 500 (Standard & Poor's 500) is a stock market index that comprises 500 large-cap stocks listed on the NYSE (New York Stock Exchange) and NASDAQ. These stocks are chosen for market size (over $8.2+ billion), liquidity, and industry group representation, among other criteria; if they slip they can be removed.  The S&P 500 is considered a leading indicator of the overall performance of the US equity market and is often used as a benchmark for the performance of actively managed portfolios.

How it works

Companies are weighted by their market cap, specifically their float-adjusted market cap (which only counts shares that are theoretically available for retail investors to buy). That means the S&P skews toward larger cap companies, and tech stocks now account for over a quarter of the index's total value.

Why it matters

With 500 stocks covering a broad range of industries, the S&P is widely considered the best indicator of large-cap stocks in the U.S. While the S&P's weighting-by-market-cap method is more common than the Dow's weighting by share price, it does introduce some risk that overvalued stocks will inflate the overall index.