The 500 firms that make up the S&P 500 have issued 503 stocks in total. Some companies have released multiple share classes, such as Alphabet. The official S&P Global website lists the top ten largest holdings. In order for an S&P 500 firm to be a constituent of the index, it has to fulfill certain standards.
But as of right now, S&P does not offer the complete list of holdings—at least not freely. Members of Capital IQ, S&P’s research division, get access to the complete list. The S&P 500 firms are a barometer of the state of the American economy, representing the best businesses in their respective sectors.
Important lessons learned
- Some of the best businesses that are leaders in their respective fields and serve as indicators of the state of the American economy are included in the S&P 500.
- Before a company can be added to the S&P, it must fulfill several requirements that are set by the index publishers.
- Because the S&P 500 index is market capitalization-weighted, businesses with the biggest market caps receive a larger percentage allocation.
- To be included in the S&P 500, a stock has to fulfill a number of requirements, such as having a $14.5 billion total market valuation.
- If a company significantly deviates from these criteria, it could be kicked out of the S&P 500.
S&P 500 Eligibility Standards
One of the most frequently mentioned stock market indices is the S&P 500, which was established in 1957. The biggest American publicly listed corporations are represented by S&P 500 stocks. The large-cap segment of the US market is the focus of the S&P 500.
To be included in the index, an S&P 500 firm needs to fulfill a number of requirements, such as the following:
- a minimum $14.5 billion total market capitalization
- The company must be American.
- A FALR (float-adjusted liquidity ratio) of at least 0.75
- a positive total of the last four quarters’ worth of trailing earnings in succession
- Profits for the most recent quarter were positive.
- must fulfill specific liquidity standards
S&P 500 Estimate
The S&P 500 index is weighted by market capitalization and is free-floating. The total dollar market value of a company’s outstanding equity shares is represented by its market capitalization. The market capitalization of a firm is determined by multiplying its current stock price by the total number of outstanding shares of stock. A business with 20 million outstanding shares, for instance, and $100 a share at market value would have a $2 billion market capitalization.
Consequently, an individual company’s stock adds to the S&P 500’s total return to the extent that its value increases. It is not unusual for a mere 50 to 75 stocks to account for 75% of the performance on the index.
Therefore, the overall return of the index will not be significantly affected by the inclusion or exclusion of smaller companies; on the other hand, the addition or deletion of even a single company from the index might have a significant effect.
S&P 500 Industry Segmentation
The leading industries and their weights within the S&P 500 index as of August 31, 2023, are listed below.
Understanding the S&P’s sector weighting is crucial because, even if a sector outperforms or underperforms the market, a lesser weighting may not have a significant effect on the value of the entire index.
For instance, if oil prices rise and the energy sector makes more money, such stocks only make up 4.4% of the S&P 500. Therefore, if, for instance, the more heavily weighted information technology sector is failing, oil stocks might not contribute to a higher S&P.
In the S&P 500, How Many Companies Are There?
Even though the index typically has 500 businesses, that number has increased. As of August 31, 2023, the S&P 500 consisted of 503 stocks. This is due to the fact that certain businesses, like Alphabet, have several classes of stock shares.
How Do Businesses Get Chosen for the S&P 500?
To be included in the S&P 500, a company has to fulfill several conditions, which include:
- a minimum market value of $14.5 billion; the company must be American
- A FALR (float-adjusted liquidity ratio) of at least 0.75
- When the positive earnings from the last four quarters added together
- An impressive quarter’s worth of earnings for the business
- Needs for liquidity
Where Can I Get the S&P 500?
The S&P 500 cannot be bought directly because it is an index; however, exchange-traded funds that mimic or track the index can be bought, as the SPDR S&P 500 Trust ETF (SPY) offered by State Street Global Advisors.
The Final Word
Some of the most well-known businesses in the world are represented in the top 25 S&P 500 firms; many of the top 10 include tech giants like Apple, Microsoft, and Google. Investors can buy the individual stocks of the firms in the index or invest in an S&P 500 tracking fund to gain exposure to the companies in the index.
