The S&P 500
The most quoted index in the world is a recipe — and once you know the recipe, you can see why it rises on days when most shares fell.
Fêr UlianovOpening · 18 s · in Portuguese
Blurred on purpose. It looks like a contradiction. It isn't.
A recipe, not a place
Last lesson left the rule: an exchange is a place, an index is a number. Now the number. An index is a recipe with three steps, and every difference between one index and another lies in how each one carries out those three steps.
The result is a single number. It has no unit — not dollars, not a percentage. On its own it means nothing; what matters is how much it has moved since yesterday, since January, since ten years ago.
Choose
Which companies go into the sum. Indices already diverge here: some lists follow an automatic rule, and the S&P 500's does not.
Weigh
How much each company counts inside the number. This is the step almost nobody knows about, and it is what explains the sentence above.
Add up
Put it all into one number and watch how it changes. The absolute value doesn't matter: the change does.
Not the five hundred largest
Here is the first surprise: nobody joins the S&P 500 merely for being big. A committee at S&P Dow Jones Indices chooses, and the decision is human. There are rule-based indices — the Russell family works that way — but this is not one of them.
The committee works inside published criteria. Passing all of them does not guarantee entry; failing one guarantees exclusion.
- Be a U.S. company, listed on the NYSE, the Nasdaq or the Cboe.
- Market capitalisation above the floor — US$22.7 billion, effective 1 July 2025. The floor is raised from time to time.
- Positive earnings in the most recent quarter and in the sum of the last four quarters.
- Enough shares in free float, and enough trading: at least 250,000 shares a month in each of the previous six months.
It is called the 500 and carries more than 500 lines, because three companies come in with two share classes each: Alphabet, Fox and News Corp. That is lesson 01 coming back — GOOGL votes, GOOG does not, and both are in the index.
Weight comes from size, and that is where the sentence lives
In the S&P 500 each company counts in proportion to what it is worth — the market capitalisation from lesson 01, adjusted to count only the shares that trade freely. A company worth ten times another weighs ten times as much in the number.
The consequence is arithmetic, not opinion: the largest ones rule. If a handful of giants rise sharply and everything else slips a little, the index rises. Drag it and watch the sum happen.
- The two largest
- The other six
- Size-weighted index
- Equal-weight index
The equal-weight version exists for real and is published by the same house. It holds the same companies as the S&P 500, each at roughly 0.2% — and it is rebalanced four times a year, or the largest would take over again.
Comparing the two is the cheapest trick there is for telling whether a rally belongs to the whole market or to half a dozen companies. When they disagree, the gap between them is the story.
A stock index is not the economy
This is the next confusion, and it turns up in every election: the S&P 500 going up does not mean the country is better off. It measures large, listed, American companies — and a vast share of the economy is none of those things.
Everything small is left out, everything privately held is left out, and so is the rest of the world. And because it is weighted by size, it describes what happened to the money invested, not to the average company.
The index answers “how did it go for someone with money in these companies”. It does not answer “how did it go for the companies”, nor “how did it go for people”. Three different questions, and only the first one has this number as its answer.
Now read the sentence
It's the same one from the top, unblurred. Tap each highlighted part.
Five pieces
Each highlighted part hides an idea. Tap one of them.
Five taps and the sentence is done.
If this landed, the lesson did what it promised
- An index is a recipe: choose, weigh, add up.
- The S&P 500 is not the five hundred largest — a committee chooses, under published criteria.
- Each company's weight comes from its size, which is why a few giants move the number.
- Ordinary index up and equal-weight down means the rally belonged to a few.
Fêr UlianovClosing · 21 s · in Portuguese
Educational material. The eight-company index is an example, with fictional figures and proportions exaggerated so the arithmetic fits on screen. The facts about the S&P 500 — who chooses, the criteria, the weighting and the equal-weight version — come from published methodology and do not change with the session. It is not a recommendation to buy or sell.