by
The Standard & Poor's (S&P) 500 is made up of 500 companies that have a total of 503 shares issued as of May 31, 2023 (some of the companies, such as Alphabet, have multiple share classes issued). The S&P 500 companies represent the top companies in their industries and are a gauge of US economic activity. An S&P 500 company must meet certain requirements to be included in the index.
The top ten holdings are listed on S&P Global's official website. However, S&P does not currently provide the full list of index holdings, at least not for free. Subscribers to S&P's research unit, Capital IQ Pro, can get access to the entire list.
The central theses
- The S&P 500 includes some of the top US publicly traded companies that are leaders in their industries and are an indicator of the US economy.
- Companies must meet certain criteria set by the index publishers before they are included in the S&P.
- The S&P 500 Index is weighted by market capitalization; There is a higher percentage allocation to companies with the largest market capitalization.
- To be included in the S&P 500, a stock must meet certain criteria, including a total market cap of at least $12.7 billion and a float-adjusted liquidity ratio (“FALR”) of at least 0.75.
- Companies can be removed from the S&P 500 if they deviate significantly from these standards.
Inclusion criteria for the S&P 500
Founded in 1957, the S&P 500 is one of the most widely traded stock market indices. S&P 500 stocks represent the largest publicly traded companies in the US. The S&P 500 focuses on the large-cap sector of the US market.
An S&P 500 company must meet a variety of criteria to be included in the index, including the following:
- A total market capitalization of at least $12.7 billion
- Must be a US company
- A float-adjusted liquidity ratio (“FALR”) greater than or equal to 0.75
- A positive sum of the last four consecutive quarters of declining earnings
- Positive profit for the last quarter
- Must meet certain liquidity requirements
note
Companies can be removed from the S&P 500 if they deviate significantly from inclusion standards.
S&P 500 calculation
The S&P 500 is a free float index weighted by market capitalization. Market capitalization represents the total dollar market value of a company's outstanding shares. Market capitalization is calculated by multiplying the total number of shares outstanding by the company's current share price. For example, a company with 20 million outstanding shares whose shares are selling for $100 per share would have a market cap of $2 billion.
The more valuable an individual company's stock becomes, the more it contributes to the overall return of the S&P 500. It's not uncommon for three-quarters of an index's return to be tied to just 50 to 75 stocks.
Therefore, the addition or removal of smaller companies from the Index will not have an appreciable impact on the Index's overall return; However, the removal or addition of even one of the largest holdings can have a significant impact.
S&P 500 sector breakdown
Below are the major sectors and their weightings in the S&P 500 Index, represented by the SPDR S&P 500 ETF Trust (SPY), as of June 27.
| Sector weighting in the S&P 500 | |
|---|---|
| sector | index weighting |
| information technology | 28.2% |
| healthcare | 13.5% |
| finance | 12.3% |
| Consumer Discretionary | 10.7% |
| Industry | 8.6% |
| communication services | 8.4% |
| Consumer Staples | 6.8% |
| energy | 4.1% |
| Utilities | 2.6% |
| materials | 2.5% |
| property | 2.4% |
It is important to know the S&P's sector weighting, as sectors with a lower weighting may not have a significant impact on the value of the overall index – even if they outperform or underperform the market.
For example, when oil prices rise, leading to higher earnings in the energy sector, these stocks account for only about 4% of the S&P 500. As a result, oil stocks, for example, do not result in a higher S&P when they are higher. The heavily weighted information technology sector is underperforming.
The components of the S&P 500 are weighted by free-float market capitalization, meaning larger companies can have a greater impact on the value of the index.
Top 25 components by market capitalization
Since the exact weights of the top 25 components are not directly available from S&P, the weights below are from the SPDR S&P 500 Trust ETF (SPY). SPY is the oldest exchange-traded fund (ETF) that tracks the S&P 500. It had $411.8 billion in assets under management (AUM) as of June 27 and is heavily traded.
As such, the SPY's portfolio weights provide a good guide to investing in the underlying S&P 500 index, although the two may not be exactly the same. As of June 27, the 25 largest S&P 500 Index constituents by weight were:
- Apple (AAPL): 7.61%
- Microsoft (MSFT): 6.80%
- Amazon (AMZN): 3.15%
- NVIDIA (NVDA): 2.83%
- Alphabet Class A (GOOGL): 1.92%
- Tesla (TSLA): 1.84%
- Meta Platforms (META), formerly Facebook, Class A: 1.74%
- Alphabet Class C (GOOG): 1.66%
- Berkshire Hathaway (BRK.B): 1.64%
- United Health Group (UNH): 1.23%
- Johnson & Johnson (JNJ): 1.16%
- ExxonMobil (XOM): 1.16%
- JPMorgan Chase (JPM): 1.11%
- Visa Class A (V): 1.01%
- Eli Lilly (LLY): 1.00%
- Broadcom (AVGO): 0.97%
- Procter & Gamble (PG): 0.97%
- Mastercard Class A (MA): 0.87%
- Home Depot (HD): 0.87%
- Merck (MRK): 0.79%
- Chevrons (CVX): 0.73%
- PepsiCo (PEP): 0.70%
- Coca-Cola (KO): 0.65%
- Costco (COST): 0.64%
- AbbVie (ABBV): 0.64%
How many companies are in the S&P 500?
Although the index generally includes 500 companies, that number has increased. As of May 31, 2023, the S&P 500 actually consisted of 503 stocks. That's because some companies have multiple stock classes, such as Alphabet.
What are the top 10 stocks in the S&P 500?
As of June 27, 2023, the top 10 holdings and their weighting in the index were:
- Apple (AAPL): 7.61%
- Microsoft (MSFT): 6.80%
- Amazon (AMZN): 3.15%
- NVIDIA (NVDA): 2.83%
- Alphabet Class A (GOOGL): 1.92%
- Tesla (TSLA): 1.84%
- Meta Platforms (META), formerly Facebook, Class A: 1.74%
- Alphabet Class C (GOOG): 1.66%
- Berkshire Hathaway (BRK.B): 1.64%
- United Health Group (UNH): 1.23%
How are companies selected for the S&P 500?
To be included in the S&P 500, a company must meet certain requirements, including:
- A market cap of at least $12.7 billion
- Must be a US company
- A float-adjusted liquidity ratio (“FALR”) greater than or equal to 0.75
- Positive gains accumulated over the last four consecutive quarters
- A profitable earnings report for the company's latest quarter
- liquidity requirements
How to buy the S&P 500?
Because the S&P 500 is an index, investors cannot buy it directly; However, shares may be purchased in ETFs that mirror or track the index, such as State Street Global Advisors' SPDR S&P 500 Trust ETF (SPY).
The conclusion
The top 25 companies in the S&P 500 are some of the most well-known companies in the world, with a large proportion of the top 10 being technology companies such as Apple, Microsoft and Google. To invest in the companies in the index, investors can buy individual stocks of the companies or invest in a fund that tracks the entire S&P 500.
The comments, opinions and analysis expressed on Investopedia are for online informational purposes. Please see our Warranty and Disclaimer for more information.
At the time of writing this article, the author owns shares in SPY.
