What is the S&P 500, in plain English
The S&P 500 tracks about 500 of the largest US companies. Here is what it measures, how it is built, and why the news quotes it every day.
When the news says "the market was up today", it usually means the S&P 500. It is the most watched measure of the US stock market.
What it is
The S&P 500 is an index. An index is a list of companies plus a rule for turning their share prices into one number. When most of those companies' shares go up, the number goes up.
The S&P 500 holds about 500 large companies listed in the United States. Together they make up most of the value of the whole US stock market. That is why it works as a quick read on how the market did.
Who picks the companies
A committee at S&P Dow Jones Indices decides which companies are in. To join, a company has to be large, based in the US, have shares that trade often, and be profitable. Companies are added and removed several times a year as they grow or shrink.
Why the biggest companies count the most
The index is weighted by company size. A company worth ten times as much as another moves the index ten times as much.
This means a handful of very large companies can drive the whole number. On some days the S&P 500 rises even though most of the companies in it fell, because a few giants went up.
What "the S&P 500 rose 1%" means
It means the combined value of the companies in the index rose by 1% from the previous day's close. It does not mean every stock rose 1%. Some rose more, some fell.
Can you own it?
You cannot buy the index itself. You can buy an index fund or an ETF (exchange-traded fund, a fund that trades like a share) that holds the same companies in the same weights. These funds aim to match the index, minus a small yearly fee.
The short version
- The S&P 500 is a list of about 500 large US companies.
- Bigger companies move it more.
- It is the number most people mean when they say "the market".
This is general information, not investment advice.
Updated