How is the S\&P 500 weighted?

The S&P 500 is a market capitalization-weighted index. This means that each company's weight in the index is determined by its market capitalization, which is the total value of the company's outstanding shares. The larger the company's market cap, the more influence it has on the index. This method contrasts with the Dow Jones Industrial Average, which is price-weighted and gives more weight to stocks with higher share prices regardless of the company's overall size 1.

Market capitalization is calculated by multiplying the total number of a company's shares by its current share price. For example, if a company has 1 billion shares at $100 each, its market cap would be $100 billion 2. This methodology ensures that larger companies like Amazon, Apple, and Microsoft have a significant impact on the index's performance, which in turn means that the S&P 500 offers a strong representation of the largest companies in the U.S. stock market 3.