The S&P 500—the Standard & Poor's 500 Index—is considered to be one of the best measures of U.S. stock market performance, tracking 500 of the largest and most stable publicly traded companies in the country. The top 25 stocks in the by weight represent the largest, most influential companies in the index. The index is weighted by market capitalization, giving more significance to companies with larger market values.
Key Takeaways
- The S&P 500 is one of the best measures of U.S. stock market performance and the health of the economy more broadly.
- The index tracks 500 of the largest and most stable publicly traded companies.
- The S&P 500 is weighted by market capitalization, which means larger companies have more influence over the performance of the index.
- The top 25 stocks in the index by weight are the largest, most influential companies included in the S&P 500.
Large-cap technology companies such as Microsoft (MSFT), Apple (AAPL),Nvidia (NVDA), Amazon.com (AMZN), and Meta Platforms (META), combined, hold over $10 trillion in total market cap, which makes them influential in the S&P 500’s one-year gain of 20%. On Feb. 21, Nvidia reported stellar earnings that showed revenue growth of 265% year-over-year, and earnings-per-share growth of 409% over the same period due to booming artificial intelligence demand.
How are Stocks Selected for the S&P 500?
To be included in the S&P 500, a company must:
- Be a U.S.-based company and trade on a major U.S. exchange
- Have a market cap of $15.8 billion or more and a float-adjusted market cap of at least 50% of the index's total company-level minimum market capitalization threshold
- Have reported positiveearningsin the most recent quarter, along with the past four consecutive quarters
- Have a float-adjusted liquidity ratio of 0.75 or greater
- Have traded a minimum of 250,000 shares in the previous six months before evaluation
The S&P 500 reconstitutes each June. Companies removed from the index are not replaced until the next annual reconstitution.
Top Sectors in the S&P 500
The table below lists the S&P 500's top sectors by weighting as of Feb. 20, 2024. The information technology, financials, healthcare, and consumer discretionary sectors carry a cumulative weight of 66%. Meanwhile, the least weighted sectors include utilities, materials, and real estate, with a combined weight of just 6.8%.
| Top Sectors in the S&P 500 | |
|---|---|
| Sector | Weighting in the S&P 500 |
| Information Technology | 29.4% |
| Financials | 13% |
| Health Care | 12.8% |
| Consumer Discretionary | 10.5% |
| Communication Services | 9.0% |
| Industrials | 8.7% |
| Consumer Staples | 6% |
| Energy | 3.8% |
| Real Estate | 2.3% |
| Materials | 2.3% |
| Utilities | 2.2% |
Top 25 Companies by Index Weight
Below are the top 25 companies by index weight. The S&P Global website doesn't disclose constituent weights, but we can use the S&P 500's proxyexchange-traded fund (ETF), the SPDR S&P 500 ETF Trust (SPY), to cite index weights. Although the ETF's holdings differ slightly from the underlying benchmark, they closely replicate its weights.
February saw some changes to the top 25. Most notable was Tesla’s (TSLA) further decline from number nine, following a weak earnings report that pointed to slowing demand for its cars. Furthermore, Adobe (ADBE) dropped out of the top 25, as the stock pulled back from its lofty valuations, while Netflix (NFLX) joined the party, as revenues and subscribers topped expectations.
As of Feb. 20, 2024, here are the largest SPY holdings by weight:
| 1 | MICROSOFT CORP (MSFT): | 7.15% |
| 2 | APPLE INC (AAPL): | 6.34% |
| 3 | NVIDIA CORP (NVDA): | 4.10% |
| 4 | AMAZON.COM, INC (AMZN): | 3.63% |
| 5 | META PLATFORMS INC, CLASS A (META): | 2.50% |
| 6 | ALPHABET INC CL C (GOOG): | 2.00% |
| 7 | BERKSHIRE HATHAWAY INC. CL B (BRK.B): | 1.77% |
| 8 | ELI LILLY AND COMPANY (LLY): | 1.44% |
| 9 | BROADCOM INC. (AVGO): | 1.29% |
| 10 | TESLA, INC (TSLA): | 1.28% |
| 11 | JPMORGAN CHASE & COMPANY (JPM): | 1.24% |
| 12 | UNITEDHEALTH GROUP INC (UNH): | 1.15% |
| 13 | VISA INC. (V): | 1.05% |
| 14 | EXXON MOBIL CORP (XOM): | 0.98% |
| 15 | JOHNSON & JOHNSON (JNJ): | 0.91% |
| 16 | MASTERCARD INC (MA): | 0.89% |
| 17 | THE PROCTER & GAMBLE COMPANY (PG): | 0.89% |
| 18 | HOME DEPOT, INC. (HD): | 0.87% |
| 19 | MERCK COMPANY. INC. (MRK): | 0.77% |
| 20 | COSTCO WHOLESALE CORP (COST): | 0.77% |
| 21 | ABBVIE INC. (ABBV): | 0.74% |
| 22 | SALESFORCE INC (CRM): | 0.67% |
| 23 | CHEVRON CORP (CVX): | 0.65% |
| 24 | ADVANCED MICRO DEVICES INC (AMD): | 0.64% |
| 25 | NETFLIX INC. (NFLX) | 0.60% |
Why Are the S&P 500's Top 25 Stocks Important?
Analyzing the top 25 stocks of the S&P 500 by index weight sheds light on the health of the stock market and broader economy. Since these companies make up a significant part of the index, they reflect the performance of key sectors, major companies, and the benchmark itself. February saw continued gains in tech giants like Microsoft, Apple, Nvidia, and Amazon. Several factors have played a role in the outsized performance of tech names—a resilient GDP, combined with declining inflation, strong margins, and competitive positions leading to cash flow generation, emerging trends such as AI, and safety in the face of an economic downturn given their size.
How Do I Invest in the S&P 500 Index?
There are several options when considering an investment in the S&P 500, spanning a wide range of risk tolerances and investment styles. ETFs—like the SPDR S&P 500 ETF Trust (SPY), iShares Core S&P 500 ETF (IVV), and Vanguard S&P 500 ETF (VOO)—are popular due to their low costs and ease of trading, behaving like stocks on the exchange. For a more traditional approach, index funds, such as the Vanguard 500 Index Fund (VFIAX) and Fidelity 500 Index Fund (FXAIX), offer a way to invest in the S&P 500, though they are traded only once per day at the market's close. For those interested in more complex strategies, derivatives like options and futures, including E-mini S&P 500 Futures, allow speculation on the future value of the index.
Advantages and Disadvantages of Investing in the S&P 500 Index
Investing in the S&P 500 Index offers key advantages, such as exposure to 500 of the largest U.S. companies, providing a diversified portfolio in a single investment. This diversity typically reduces risk compared to investing in individual stocks. Additionally, the historical performance of the S&P 500 has shown consistent long-term growth, making it a favored choice for investors
with a long-term horizon who can wait out market volatility.
However, a notable disadvantage is its current heavy concentration in the top seven names, which could skew performance toward certain sectors or companies, potentially increasing risk. For example, the S&P 500 Equal Weight Index (a version of the S&P 500 index where each of the constituent companies has an equal weight, regardless of their market capitalization), is only up 8% over the past year, versus the S&P 500’s 25%. That said, as analysts have begun to lift their S&P 500 forecast based on upbeat profit revisions, the performance differential between the S&P 500 and its equal-weight counterpart should continue to narrow.
The Bottom Line
The S&P 500 weights constituent companies by market cap, meaning larger firms carry significantly more weight than those with small market values. As a result, tech giants such as Apple, Microsoft, Nvidia, and Amazon greatly influence the index's performance. Investors closely follow the S&P 500's top 25 stocks by index weighting to gauge the health of the stock market and the broader U.S. economy.
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As of the date this article was written, the author does not own any of the above securities.
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S&P Global. "S&P Dow Jones Indices Announces Update to S&P Composite 1500 Market Cap Guidelines."
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S&P Global. "S&P U.S. Indices Methodology."
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