What is the S&P 500 and why does it matter to traders?

The S&P 500 is one of the most quoted indices in US markets and is widely regarded as a key benchmark in global finance. Alongside the Dow Jones Industrial Average (DJIA) and the Nasdaq Composite, it is frequently referenced as an indicator of conditions in the stock market and the US economy. Its influence is international, as many of the largest companies in the index generate a significant share of their revenues outside the United States.

What is the S&P 500?

The S&P 500 is a stock market index that tracks the performance of the 500 (or so) largest companies in the US. It is a capitalisation-weighted index, meaning companies are selected for inclusion based on their total market value and given a weighting relative to their size – a US$50 billion company will have double the weighting of a US$25 billion company.

It was founded by financial services business and ratings agency Standard & Poor’s in 1957 to replace an earlier 90-stock index. Today it is owned by S&P Dow Jones Indices, which publishes more than 130,000 indices across the world, including the Dow Jones Industrial Average, the S&P/ASX 200 in Australia and the S&P/TSX in Canada.

Why traders watch the S&P 500

With a combined market cap of more than US$55.4 trillion as of mid-September 2025, the S&P 500 represents around 70-80% of the US stock market. This allows it to serve as a fairly reliable proxy for both the US stock market and the wider economy. As with the DJIA, the conventional wisdom is that if the S&P 500 is performing well, then so is the US economy (and vice versa). For that reason, it is closely followed by traders and investors around the world.

Many traders follow the S&P 500 as it is often seen as a reflection of overall US market sentiment and can influence the direction of global equities. The index is commonly monitored around major economic data releases and central bank policy announcements, and its movements may be linked to other asset classes such as currencies, commodities and bonds. It also forms the basis for products like CFDs, futures and options, is associated with volatility measures such as the VIX, and can provide indications of sector performance and technical levels, making it a widely referenced index in trading.

Inside the S&P 500: companies and sectors

The S&P 500 is rebalanced on a quarterly basis for additions and deletions as needed, with the committee that oversees it adding or removing stocks from the index due to movements in share prices and other factors.

As of August 2025, the top ten stocks accounted for about 38% of the total market cap.

Unsurprisingly, information technology is the largest sector on the index, representing about 32.6%, followed by financials (~13.8%), communication services (~11.5%), consumer discretionary (~11.2%), health care (~8.6%), industrials (~7.95%), consumer staples (~5.7%), energy (~2.9%), utilities (~2.2%), real estate (~1.9%) and materials (~1.8%).

S&P 500 constituents

S&P 500 vs the DJIA vs the Nasdaq Composite

These three indexes are quoted regularly in stock market news reports, both within the US and across the world, but how do they differ from each other and how much do those differences matter?

The DJIA

The Dow Jones is one of the oldest stock market indices in the world and predates the S&P 500 by several decades. It currently consists of 30 large blue-chip stocks that are considered representative of their industries and unlike the S&P 500, its composition rarely changes. It remains the most widely quoted index in the world, though many market watchers consider the S&P 500 to be the better barometer of the health of the stock market and the economy because of its broader composition.

The Nasdaq Composite

The Nasdaq Composite includes all of the over 2,500 stocks listed on the Nasdaq. Its composition is heavily concentrated in the tech sector, which makes up around 50 to 60% of the index’s value, a much larger share than many other sectors.

How to trade the S&P 500

US SPX 500 – Cash

One of our top traded index products is the US SPX 500 – Cash, which allows you to take a position on the S&P 500 index directly. Depending on your trading strategy, you can go long or short, react to market moves in real time, and benefit from tight spreads on one of the most followed benchmarks in the world.

Buy shares in companies listed on the S&P 500

The S&P 500 includes many of the world’s largest companies and counts many well-known global names among its constituents. These companies can be traded directly via our platform, depending on your trading approach.

S&P 500 ETFs

Traders can also use a variety of S&P 500 ETF-based CFDs to take positions in different ways, depending on their strategy. For example, the Invesco S&P 500 Equal Weight ETF gives every stock the same weighting, reducing the dominance of mega-cap names, while the Invesco S&P 500 Top 50 ETF narrows exposure to the market’s largest players. The Invesco S&P 500 Equal Weight Technology ETF provides a more concentrated view on the tech sector, which can be more volatile than the broader S&P 500 index. These products can be used to implement tactical strategies such as hedging, sector rotation, or positioning for shifts in leadership between large caps and the wider market.

S&P 500 futures and options

Another way to gain exposure is through S&P 500 futures contracts or CFDs (contracts for difference). These allow traders to speculate on where the index will be at a particular point in the future, without taking ownership of the underlying assets. Depending on your strategy, trading can be carried out on margin, with traders putting forward a certain amount of capital and borrowing the rest from their broker, which increases the risk/reward proposition.

Conclusion

The S&P 500 is more than a collection of leading US companies. It is a benchmark for global market sentiment, a driver of correlations across asset classes, and the foundation for highly liquid instruments such as CFDs, futures and ETFs. For traders, keeping track of its composition, sector shifts and reaction to economic events can provide valuable context on their trading journey.