The S&P 500 is a market-capitalization (market cap) weighted index made up of 505 companies. To get a better feel of the index composition, having a general understanding of how to calculate a company’s market cap is helpful.
To calculate a company’s market cap, you take their outstanding shares and multiply it by their share price. Because the S&P 500 is a cap-weighted index, the larger the market cap, the higher the weighting. As of September 14, 2020, Apple is the largest company in the index with a market cap of 1.95 trillion and makes up 6.27 percent of the S&P 500.
The S&P 500’s value is computed using a free-float market cap methodology. Simply put, a company’s position within the index will change based on the fluctuation of its outstanding shares and its stock price.
The chart above shows how a free-floating index works. General Electric was the 10th largest company in the S&P 500 at the beginning of 2016. At the start of 2020, it was the 66th largest.
Top 5 Companies
Apple, Amazon, Microsoft, and both share classes of Google make up 23.25 percent of the S&P 500. Close to 25 percent of the daily fluctuation in “the market” is driven by the performance of these companies.
Top 10 Companies
In addition to the top 5, Facebook, Berkshire Hathaway, Visa, Johnson & Johnson, and Walmart round out the ten largest companies in the U.S. These ten companies are responsible for nearly 1/3 of the performance and size of the index.
Bottom 100 Companies
The market-cap for the bottom 100 companies is 722 million. To put that in perspective, the market cap of the bottom 100 companies is 1/3 of Apple’s market cap. These 100 companies make up just 2.3 percent of the index.
Bottom 250 Companies
The bottom half of the companies in the S&P 500 make up just 10 percent of the index. For reference, Apple and Amazon’s combined market cap is greater than the bottom 250 S&P 500 companies.
Top 10 and Bottom 419
The top 10 and bottom 419 companies in the index account for about the same market cap, around 31%.
As big tech companies continue to dominate the global business landscape, it will be interesting to see how the S&P 500 will change in the years to come.
*This is not a recommendation to purchase or sell the stocks of the companies picture/mentioned*