S&P 500

The S&P 500 was introduced in its current form in 1957 by Standard & Poor's, though its roots trace to a 90-stock index created in 1926. Today, it covers approximately 80% of the total U.S. equity market by market capitalization, making it the single most cited benchmark for the health of American equities. Companies included in the index range from Apple and Microsoft (the two largest constituents by weight) to smaller but still enormous corporations across sectors including healthcare, energy, financials, industrials, and consumer staples.

Because the S&P 500 is market-capitalization-weighted, larger companies have a proportionally greater influence on the index's daily movements. As observed in recent years, the combined weight of the top five or six mega-cap technology companies — Apple, Microsoft, Amazon, Alphabet, Meta, and NVIDIA — has grown so large that their performance alone can meaningfully move the entire index. This concentration is an important nuance for investors seeking true broad-market diversification.

Inclusion in the S&P 500 is not automatic. S&P Dow Jones Indices convenes a committee that evaluates potential entrants based on criteria including U.S. domicile, minimum market capitalization (currently set above $18 billion), positive as-reported earnings over the most recent quarter and four quarters cumulatively, adequate liquidity, and public float. When a company is added to the index, index funds and ETFs that track the S&P 500 — collectively managing trillions of dollars — are required to purchase shares of the new entrant, which historically has created short-term upward price pressure known as the 'index effect.'

Historically, the S&P 500 has experienced several major drawdowns that serve as important case studies in market risk. The index fell approximately 57% from its October 2007 peak to its March 2009 trough during the Global Financial Crisis — its worst bear market since the Great Depression. It then declined roughly 34% in just 33 days between February and March 2020 at the onset of the COVID-19 pandemic, one of the fastest drawdowns on record, before recovering to new all-time highs within five months.

For educational purposes, the S&P 500 is the basis for a vast ecosystem of financial products, including index mutual funds offered by Vanguard and Fidelity, exchange-traded funds such as the SPDR S&P 500 ETF (SPY) and the iShares Core S&P 500 ETF (IVV), and futures and options contracts traded on the CME Group. Many financial professionals use S&P 500 total return data as the baseline against which active investment strategies are measured.