Weighting Formula and Calculation of theS&P 500
The S&P 500 uses a market-cap weightingmethod, giving a higher percentage allocation to companies with the largestmarket capitalizations.1
Company Weighting in S & P
=
Company market cap
Total of all market caps
Company Weighting in S & P=
Total of all market caps
Company market cap
Determining the weighting of each componentof the S&P 500 begins with adding up the total market cap for the index byadding together the market cap of every company in the index.
To review, the market cap of a company iscalculated by taking the current stock price and multiplying it by thecompany's outstanding shares. Fortunately, the total market cap for the S&P500 as well as the market caps of individual companies are published frequentlyon financial websites, saving investors the need to calculate them.
The weighting of each company in the indexis calculated by taking the company's market cap and dividing it by the totalmarket cap of the index.2
Other S&P Indices
The S&P 500 is a part of the S&PGlobal 1200 family of indices. Other indices included are the S&P MidCap400, which represents the mid-cap range of companies, and the S&P SmallCap600, which represents small-cap companies. The S&P 500, S&P MidCap 400,and S&P SmallCap 600 combine to cover 90% of all U.S. capitalization in anindex known as the S&P Composite 1500.34
S&P 500 Index Construction
The S&P only uses free-floating shareswhen calculating market cap, meaning the shares that the public can trade. TheS&P adjusts each company's market cap to compensate for new share issues orcompany mergers. The value of the index is calculated by totaling the adjustedmarket caps of each company and dividing the result by a divisor. The divisor isproprietary information of the S&P and is not released to the public. TheS&P Index (SPX) is not a total return index and does not include cashdividend gains for the companies listed.5
However, you cancalculate a company's weighting in the index, which can provide investors withvaluable information. If a stock rises or falls, you can get a sense as towhether it might have an impact on the overall index. For example, a companywith a 10% weighting will have a greater impact on the value of the index thana company with a 2% weighting.
The S&P 500 isone of the most widely quoted American indexes because it represents thelargest publicly traded corporations in the U.S. The S&P 500 focuses on theU.S. market's large-cap sector and is also a float-weighted index (a type ofcapitalization weighting), meaning company market caps are adjusted by thenumber of shares available for public trading.1
The S&P 500'smost recent rebalancing was announced on Sep. 1, 2023, and took effect beforemarkets opened on Sept. 18, 2023. Blackstone Inc. and Airbnb Inc. replacedLincoln National Corp. and Newell Brands Inc., respectively.6
S&P 500Competitors
S&P 500 vs. DowJones Industrial Average (DJIA)
Another common U.S.stock market benchmark is the Dow Jones Industrial Average (DJIA). The S&P 500is often the institutional investor's preferred index given its depth andbreadth, while the DJIA has historically been associated with significantequities from the retail investor's point of view. Institutional investorsperceive the S&P 500 as more representative of U.S. equity markets becauseit comprises more stocks across all sectors (500 versus the Dow's 30).
Furthermore, theS&P 500 uses a market-cap weighting method, giving a higher percentageallocation to companies with the largest market caps, while the DJIA is aprice-weighted index that gives companies with higher stock prices a higherindex weighting. The market-cap-weighted structure tends to be more common thanthe price-weighted across U.S. indexes.7
S&P 500 vs.Nasdaq
Nasdaq is a globalelectronic marketplace for trading securities. There are several equity marketindexes that include stocks traded on Nasdaq. Note that a given stock includedin the S&P 500 Index may also be in one or more of the various Nasdaqindexes.
Among themost-watched Nasdaq stock indices are the:
Nasdaq 100 Index,which includes 100 of the largest, most actively traded common equities listedon Nasdaq.
Nasdaq CompositeIndex, which the media often simply refers to as the Nasdaq (and which includesmore than 2,500 common stocks that trade on Nasdaq).
Nasdaq Global EquityIndex (NQGI), which includes international stocks.
PHLX SemiconductorSector Index (SOX), which is the leading barometer of stocks related to thesemiconductor industry.
OMX Stockholm 30Index (OMXS30), which includes 30 actively traded stocks on the Stockholm disallowed.8
S&P 500 vs.Russell Indexes
The S&P 500 is amember of a set of indexes created by Standard & Poor's. The Standard &Poor's set of indexes is like the Russell index family in that both aremarket-cap-weighted indexes unless stated otherwise (as in the case ofequal-weighted indexes, for example).
