S&P 500

The S&P 500 is the benchmark that professional money managers love to hate — because most of them can't beat it. Maintained by S&P Dow Jones Indices, a division of S&P Global, the index tracks 500 of the largest publicly traded companies in the United States and is widely considered the single most important gauge of the American equity market. When pension funds report their annual returns, when hedge fund performance is scrutinized in the financial press, and when academic papers analyze long-run stock market behavior, the S&P 500 is almost always the yardstick.

The index traces its origins to 1923, when Standard & Poor's began publishing a stock index covering a small number of companies. The modern 500-stock version launched on March 4, 1957, and it has grown in stature ever since. Unlike the Dow Jones Industrial Average, which is price-weighted and limited to 30 components, the S&P 500 uses a float-adjusted market capitalization weighting methodology. This means that companies with larger public market values exert more influence on the index's daily moves. Apple, Microsoft, NVIDIA, Amazon, and Alphabet are typically among the heaviest weights, and during periods of concentrated market leadership, the top ten holdings can account for a third or more of the index's total value. That concentration is sometimes viewed as a vulnerability, but it also reflects the economic reality of which companies are generating the most value in the current cycle.

Inclusion in the S&P 500 is not automatic. An index committee at S&P Dow Jones Indices evaluates potential additions based on multiple criteria: U.S. domicile, a market capitalization above a regularly updated threshold (recently in the range of $18 billion), adequate liquidity, a public float of at least 50% of shares outstanding, positive earnings in the most recent quarter and over the trailing four quarters combined, and sufficient trading volume. The committee also considers sector balance, aiming to keep the index roughly representative of the broader economy. Removals happen when companies are acquired, go private, shrink below the eligibility floor, or otherwise fail to meet the criteria. This active curation is one reason the S&P 500 has maintained its relevance for nearly seven decades — it evolves with the economy rather than locking in a static list.

The index covers all eleven Global Industry Classification Standard (GICS) sectors: Information Technology, Health Care, Financials, Consumer Discretionary, Communication Services, Industrials, Consumer Staples, Energy, Utilities, Real Estate, and Materials. That breadth is a big part of its appeal. While specialized indices like the NASDAQ-100 lean heavily into technology, the S&P 500 offers a genuinely diversified snapshot of American corporate earnings across the entire economy. Approximately 80% of total U.S. equity market capitalization falls within the index, which is why many analysts use the terms "the S&P 500" and "the U.S. stock market" almost interchangeably.

The financial product ecosystem built on top of the S&P 500 is enormous. The SPDR S&P 500 ETF Trust (SPY), launched in 1993, was the first exchange-traded fund listed in the United States and remains the most actively traded security in the world by dollar volume. Vanguard's S&P 500 ETF (VOO) and iShares Core S&P 500 ETF (IVV) are among the largest funds in existence by total assets. S&P 500 index futures, traded on the CME, are the backbone of institutional equity hedging and are used as a real-time proxy for market sentiment well before the cash market opens each morning. Options on SPY and the index itself are the most liquid equity derivatives on the planet. This deep, interconnected web of products means that the S&P 500 is not merely an index — it is, in many ways, the operating system of modern American investing.

For long-term, fundamentals-focused investors, the S&P 500 offers a few key lessons worth remembering. First, over very long horizons, the index has delivered annualized total returns (including dividends) in the neighborhood of 10% per year, though individual decades have varied widely. Second, the index's composition changes over time in ways that automatically favor winning businesses and discard failing ones — a form of passive Darwinian selection that partly explains its strong long-term track record. Third, because the S&P 500 is cap-weighted, it naturally tilts toward companies that the market has already rewarded with high valuations. That makes it an excellent benchmark but not necessarily a value-hunting tool; investors looking for undervalued businesses often need to look beyond the index's largest constituents or complement their analysis with fundamental screening.

The S&P 500 has weathered every major financial crisis of the past seven decades — the 1973–74 bear market, the 1987 crash, the dot-com bust of 2000–2002, the global financial crisis of 2008–09, and the COVID-19 sell-off of 2020 — and has eventually recovered to reach new highs after each one. That resilience is not a guarantee about the future, but it is a powerful empirical record that underpins the case for long-term equity ownership. For anyone building a fundamentals-first investment process, understanding the S&P 500 is not optional. It is the baseline against which all other strategies are measured.