What is the S&P 500

The S&P 500 Index is a stock market index that tracks the 500 leading publicly traded companies by market capitalisation in the United States. It is widely regarded to be one of the best gauges of overall American stock market performance as it captures the activity of around 80% of the market capitalization of all US stocks.

Launched in 1957 by credit rating agency Standard & Poor’s, the S&P 500 is a float-weighted index. This means the market capitalisations of the companies in the index are adjusted by the number of shares available for public trading, the free float.

To calculate the market cap of a company in the S&P 500, the current stock price is multiplied by the company's outstanding shares. As such, the value of the S&P 500 changes constantly throughout the trading day based on the movements of these company valuations.

One drawback of the S&P 500 being float-adjusted is that the index is weighted in favour of large-cap companies, meaning these stocks can have an outsized impact on the index. However, it is still considered more representative of the total stock market than narrower price weighted indices like the Dow Jones.