What is the "point" (purpose) of the S&P 500?
I've long wondered about the philosophy behind the selection of stocks in the S&P 500.
I've assumed that it was intended as a market indicator, with the selection being those that best paralleled the market as a whole, but many mutual funds are based on it, and many others are compared to it. This would indicate that the selection method chooses stocks that are doing better than the market as a whole.
As an example of what I'm puzzled about, if one stock in the S&P500 were to suddenly skyrocket, then if the S&P500 goal is to have the best mix of stocks, then it would be kept in the 500, but if their goal is to have the most representative mix of stock, it would have to be replaced.
What does S&P do in such a case?
(1)1 Comments
Sorted by latest first Latest Oldest Best
I hate to point to Wikipedia as an answer, but it does describe exactly what you are looking for...
The S&P 500 is a free-float
capitalization-weighted index
published since 1957 of the prices of
500 large-cap common stocks actively
traded in the United States. The
stocks included in the S&P 500 are
those of large publicly held companies
that trade on either of the two
largest American stock market
exchanges; the New York Stock Exchange
and the NASDAQ.
The components of the S&P 500 are
selected by committee... The committee
selects the companies in the S&P 500
so they are representative of the
industries in the United States
economy. In addition, companies that
do not trade publicly (such as those
that are privately or mutually held)
and stocks that do not have sufficient
liquidity are not in the index.
The S&P is a capitalization weighted index. If a stock price goes up, then it comprises more of the total index. If a stock goes down, it comprises less, and if it goes down too much, the committee will likely replace it.
So to answer your question, if one stock were to suddenly skyrocket, nothing would happen beyond the fact that the index was now worth more and that particular stock would now make up a larger percentage of the S&P 500 index.
Terms of Use Privacy policy Contact About Cancellation policy © freshhoot.com2026 All Rights reserved.