The S and P 500 is a stock market index that tracks the share prices of about 500 large United States companies, and it is widely used as a gauge of the large-company segment of the US equity market.
It is calculated and maintained by S and P Dow Jones Indices, whose own factsheet describes it as widely regarded as the best single gauge of large-cap US equities, covering approximately 80 percent of available market capitalisation.
The index was launched on March 4, 1957, and its first index value is dated January 3, 1928.
An index is a calculation rather than a security, so an investor cannot buy the S and P 500 itself.
Exposure comes through index funds, exchange-traded funds, futures and options that are designed to track it.
The S and P 500 is relevant to the SIE, Series 7 and Series 65 examinations as a common benchmark for US equity performance and as the underlying for index funds, ETFs, futures and index options.
The S and P 500 is weighted by float-adjusted market capitalisation.
A company’s market capitalisation is its share price multiplied by the number of shares outstanding.
The float-adjusted figure counts only the shares that are available to the public, which leaves out blocks held by insiders, governments and other strategic holders.
Each company’s weight in the index is its float-adjusted market capitalisation divided by the total for all constituents, so a price change in a large company moves the index more than the same percentage change in a small one.
This differs from a price-weighted index, in which each stock counts in proportion to its share price, and from an equal-weighted index, in which every company counts the same.
The Dow Jones Industrial Average, for example, is price-weighted.
A simple example with three hypothetical companies shows how weighting works.
Suppose the float-adjusted market capitalisations of Company A, Company B and Company C are $600 billion, $300 billion and $100 billion, which gives them weights of 60 percent, 30 percent and 10 percent of a three-company index.
If A rises 10 percent, B falls 5 percent and C rises 20 percent, the index changes by 60 percent of 10 percent, plus 30 percent of minus 5 percent, plus 10 percent of 20 percent, which is 6.0 minus 1.5 plus 2.0, a gain of 6.5 percent.
An equal-weighted index of the same three companies would have gained the simple average of the three moves, about 8.3 percent, because the smallest company’s 20 percent gain would count as much as the largest company’s 10 percent gain.
Float adjustment changes the starting weights. Suppose a company has a total market capitalisation of $500 billion and an investable weight factor of 0.80.
Its float-adjusted market capitalisation is $400 billion, and that smaller figure, not $500 billion, determines its weight in the index.
The index is not simply a ranking of the 500 largest companies.
An index committee at S and P Dow Jones Indices selects the constituents at its discretion from companies that meet published criteria.
A candidate must be a US company with its primary listing on an eligible US exchange.
For addition, its unadjusted market capitalisation must meet a minimum, which S and P Dow Jones Indices raised from $20.5 billion to $22.7 billion effective July 1, 2025 and reviews at the start of every calendar quarter.
The company’s float-adjusted market capitalisation must also be at least 50 percent of that minimum, and its investable weight factor, the proportion of its shares available to the public, must be at least 0.10.
A newly listed company must have traded on an eligible exchange for at least 12 months.
It must also pass a financial viability screen that requires positive earnings under Generally Accepted Accounting Principles in the most recent quarter and in the sum of the most recent four quarters.
The market capitalisation minimum applies to additions rather than to continued membership, so a company whose value later falls below it is not automatically removed.
On June 4, 2026, after consulting market participants on whether very large new listings should be admitted faster, S and P Dow Jones Indices announced that it would make no changes to the S and P 500 methodology, so the 12-month seasoning period remains.
These figures and rules can change, so the current methodology published by S and P Dow Jones Indices is the authority.
Since April 17, 2023, companies with more than one class of common stock have been eligible for addition, although tracking stocks remain ineligible.
As of July 31, 2026 the index held 503 constituents for its 500 leading companies, and Alphabet, for example, appears twice among the ten largest holdings through its Class A and Class C shares.
The S and P 500 covers the large-company segment of the US equity market, and S and P Dow Jones Indices publishes companion indices for smaller companies.
In its July 2025 update, it set the market capitalisation ranges for addition at $22.7 billion or more for the S and P 500, $8.0 billion to $22.7 billion for the S and P MidCap 400 and $1.2 billion to $8.0 billion for the S and P SmallCap 600.
S and P Dow Jones Indices reviews those ranges at the start of every calendar quarter, and the benchmark statement for the S and P 500 says that its constituents are selected from the S and P Total Market Index.
A fund benchmarked to the S and P 500 therefore says little about how mid-sized and smaller companies performed.
An index must keep its level continuous when its membership changes.
S and P Dow Jones Indices does this with a divisor, and its benchmark statement for the S and P 500 explains that to ensure an index’s value does not change when stocks are added or deleted, the divisor is adjusted to offset the change in the market value of the index.
The S and P 500 has no scheduled reconstitution. Changes are made as needed in response to market developments such as mergers or delisting, while maintenance such as the quarterly update of share counts follows a regular schedule.
The index factsheet describes the index as rebalanced quarterly, in March, June, September and December, and calculated in real time.
Corporate actions follow published rules. When a constituent is acquired, S and P Dow Jones Indices generally removes the target company on or around its expected delisting, or last trading, date.
When a constituent spins off a new company, the spun-off security is generally added to the index at a zero price at the market close of the day before the ex-date, with no divisor adjustment, and if it is not eligible for continued inclusion it is removed after at least one day of regular way trading, with a divisor adjustment.
These are general policies, and an index methodology that specifies a different approach takes precedence.
Funds that track the S and P 500 must hold the companies in it, so a company’s addition creates demand for its shares.
An abnormal return is a return above or below what would normally be expected given movements in the market, and researchers have studied whether additions to the index produce one.
In a December 2022 National Bureau of Economic Research working paper, Greenwood and Sammon reported that the abnormal return associated with a stock being added to the S and P 500 had fallen from an average of 3.4 percent in the 1980s and 7.6 percent in the 1990s to 0.8 percent over the past decade, which they measure as 2010 to 2020.
Deletions showed a similar pattern, with large negative abnormal returns on average during the 1980s and 1990s but only minus 0.6 percent between 2010 and 2020.
Greenwood and Sammon also describe earlier studies from the 1980s that found abnormal returns of approximately 3 percent around the announcement of an addition.
The decline occurred despite a significant increase in the percentage of stock market assets linked to the index, and the authors discuss the implications for market efficiency.
Index membership is therefore not a guarantee of a price gain.
S and P Dow Jones Indices calculates the index in more than one form.
The price return version reflects only changes in the prices of the constituents and makes no adjustment for regular cash dividends.
The total return version assumes that dividends are reinvested.
The indicated dividend yield of the S and P 500 was 1.12 percent on July 31, 2026, and the factsheet for that date reports price return only, so its performance figures exclude dividends.
When a fund’s return is compared with the index, the comparison should set total return against total return and price return against price return.
On Aswath Damodaran’s annual United States data for 1928 to 2024, the S and P 500 including dividends compounded at about 9.9 percent a year.
The standard deviation of its annual returns was about 19.5 percent, and it recorded a negative calendar-year return in 26 of the 97 years, including a loss of about 43.8 percent in 1931.
More recent calendar-year price returns show the same pattern: a loss of about 19.4 percent in 2022 was followed by gains of about 24.2 percent in 2023 and about 23.3 percent in 2024.
A higher average return paired with large swings from year to year is the risk-return tradeoff in practice.
Past index returns do not predict future results, and an index return is not what a fund investor receives, because the index itself bears no fees or trading costs.
Capitalisation weighting concentrates the index in its biggest companies. As of July 31, 2026, the ten largest constituents made up 37.6 percent of the index and the single largest made up 7.6 percent.
The ten largest included technology, communication services, consumer discretionary and financial companies.
An S and P 500 fund therefore holds about 500 companies but does not hold them in equal amounts, and the performance of a small number of very large companies can drive the index’s return in either direction.
The index also covers only about 80 percent of available market capitalisation, so it leaves out the smaller companies that make up the rest of the market.
When John Bogle launched what is now the Vanguard 500 Index Fund on August 31, 1976, as First Index Investment Trust, it was the first index fund for individual investors, and it has served since then as an investable version of the S and P 500.
The SPDR S and P 500 ETF Trust, known as SPY, launched on January 22, 1993 and is described by its sponsor, State Street Global Advisors, as the first US-listed exchange-traded fund.
E-mini S and P 500 futures at CME Group have a contract unit of $50 times the index, quarterly contract months in March, June, September and December, and cash settlement.
Each 0.25 index point is worth $12.50, and at an index level of 7,500 one contract represents $375,000 of notional exposure.
Options on the S and P 500 trade on Cboe as SPX options.
Each has a multiplier of $100, so a premium quoted in index points is worth $100 per point.
SPX options are European-style, meaning they generally may be exercised only on the expiration date, and they are cash-settled, so exercise delivers cash on the business day after expiration rather than any shares.
The cash amount is the difference between the exercise-settlement value and the strike price, multiplied by $100.
For example, a call option with a strike price of 7,400 that settles at 7,450 pays 50 points times $100, which is $5,000, to its holder.
For standard SPX options expiring on the third Friday of the month, the settlement value is calculated from the opening sales prices of the component securities on the expiration date, and trading ends on the preceding business day, usually a Thursday.
SPXW options use the closing sales prices of the components on the expiration date and trade until the day of expiration.
Section 1256 of the Internal Revenue Code treats a listed nonequity option as a Section 1256 contract, with gain or loss generally treated as 60 percent long-term and 40 percent short-term.
It defines an equity option as an option to buy or sell stock, or an option whose value is determined by reference to any stock or any narrow-based security index, and it defines a nonequity option as any listed option that is not an equity option.
A listed option on a broad-based index such as the S and P 500 is therefore generally a nonequity option, but the tax treatment of any trade depends on the investor’s circumstances, so a tax professional should confirm it.
A benchmark is a standard against which a portfolio’s performance is judged, and the S and P 500 is a common yardstick for portfolios of US large-company stocks.
It is a fair test only when it resembles what is being measured.
A fund that invests in small companies, foreign stocks or bonds holds a different mix from the S and P 500, so beating or trailing the index may say more about the difference in what the fund owns than about the skill of its manager.
Active management seeks to outperform an index such as the S and P 500, while passive management seeks to match it.
S and P Dow Jones Indices publishes the SPIVA U.S. Scorecard, which compares the performance of actively managed funds with their benchmarks, and for large-cap funds that benchmark is the S and P 500.
In the scorecard with data as of December 31, 2025, which was published in March 2026, 79 percent of all active large-cap US equity funds underperformed the S and P 500 in 2025, worse than the 65 percent recorded in 2024.
Over longer periods the share was higher on an absolute-return basis: about 89 percent of funds underperformed over five years, about 86 percent over 10 years, about 90 percent over 15 years and about 93 percent over 20 years.
The scorecard accounts for funds that closed or merged. In its own words, SPIVA scorecards account for the entire opportunity set, not just the survivors, which eliminates survivorship bias.
Of the 760 large-cap funds that existed at the start of the 20-year period, about 35 percent were still in existence at its end.
These results describe large-cap US funds against one benchmark over specific periods, and past results do not predict future ones.
Recommending an S and P 500 fund, ETF, future or option is a recommendation like any other.
An S and P 500 fund is diversified across about 500 companies, but it is fully exposed to the risk of the US large-company stock market, as the loss of about 43.8 percent in 1931 and the price decline of about 19.4 percent in 2022 show.
Under the care obligation of Regulation Best Interest, at 17 CFR 240.15l-1, a broker-dealer making a recommendation to a retail customer must exercise reasonable diligence, care and skill to understand the potential risks, rewards and costs associated with the recommendation.
It must also have a reasonable basis to believe that the recommendation is in the best interest of the particular retail customer, based on that customer’s investment profile and those risks, rewards and costs, without placing its own interest ahead of the customer’s.
The regulation says that an investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs and risk tolerance.
Investment advisers owe a fiduciary duty under the Investment Advisers Act of 1940.
For an S and P 500 product the factors to weigh include the customer’s risk tolerance and time horizon, the cost of the product, such as an expense ratio, and its structure.
Futures and options on the index carry a multiplier, $50 for E-mini futures and $100 for SPX options, so a small move in the index produces a much larger change in dollars than it does for an investor who simply holds a fund.
The S and P 500 is relevant to the SIE, Series 7 and Series 65 examinations.
FINRA’s SIE content outline lists benchmarks and indices, equity versus index options, underlying or cash settlement, and ETFs.
The Series 7 outline covers index options strategies, the tax treatment of option transactions and index futures, and the NASAA Series 65 outline covers benchmarks, active and passive management and portfolio performance measures.
The S and P 500 tracks about 500 large US companies, is weighted by float-adjusted market capitalisation and is maintained by an index committee that applies published eligibility rules at its discretion, so it is not simply the 500 largest companies.
Because of capitalisation weighting, the largest companies dominate the index, and as of July 31, 2026 the ten largest made up 37.6 percent of it.
Weights are proportional to float-adjusted market capitalisation, so a given percentage move in a large company changes the index more than the same move in a small one, and a divisor keeps the index level continuous when constituents change.
The price return version excludes dividends and the total return version reinvests them, so comparisons should be made on the same basis.
SPX options are European-style, cash-settled and carry a $100 multiplier, and E-mini futures carry a $50 multiplier.
The abnormal return from being added to the index fell from 7.6 percent in the 1990s to 0.8 percent over 2010 to 2020, and in the SPIVA scorecard for 2025, 79 percent of active large-cap US equity funds underperformed the index.
A recommendation involving the S and P 500 remains subject to the care obligation of Regulation Best Interest for broker-dealers and to the fiduciary duty of the Investment Advisers Act of 1940 for investment advisers.
The S and P 500 measures large US companies only, so it is a meaningful benchmark only for portfolios that resemble it.
