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How S&P 500 works ?

In order to understand how the S&P 500 works, first you need to understand what the S&P 500 is !


Question - what is S&P 500 index ?

Answer - S&P 500 is a US Stock Market index which tracks the performance of top 500 companies listed in the US Stock Market or the NYSE (New York Stock Exchange) and Nasdaq. The S&P 500 is based on the capitalization weighted index methodology wherein the weight of each company is determined by the valuation of that company and not the stock price of the company.


Lets understand this through an Example - AAPL has a market cap of $2.79 Trillion as on September 9th 2023. Even though AAPL is the biggest company in the world but its Share Price is just around $178 however AAPL is the biggest contributor to the S&P 500 and its weight is 7.03% of the S&P 500. On the other hand UNH (UnitedHealth Group) has a total market cap of $445 Billion but its Share Price is $481 however its weightage in the S&P 500 is only 1.2%.

This means that even a slight change in AAPL will influence the S&P 500 heavily whereas a heavy change in UNH might not make any significant impact on the S&P 500.


Question - What are the TOP 10 Companies of the S&P 500 ? & why these top 10 companies of the S&P 500 are important ?

Answer - The top 10 companies of the S&P 500 has a total weightage of more than 30% and the rest of 490 companies have a total weightage of 70%.


AAPL (Apple Inc.) --- 7.03%

MSFT (Microsoft Crop) --- 6.57%

AMZN (Amazon.com Inc) --- 3.3%

NVDA (Nvidia Corp) --- 3.06%

GOOGL (Alphabet Inc Class A) --- 2.15%

GOOG (Alphabet Inc Class C) --- 1.86%

TSLA (Tesla Inc) --- 1.81%

META (Meta Platforms Inc Class A) --- 1.77%

BRK.B (Berkshire Hathaway Inc Class B) --- 1.73%

XOM (Exxon Mobil Crop) --- 1.23%


Now comes the question that how does the S&P 500 works ?

Answer to this question is - The S&P 500 considers the % movement of its constituents as per their weightage (primarily top 10 companies) and gives an aggregate movement. For example if AAPL moves by 0.75% and MSFT moves by -1% and AMZN moves by 0.5% and NVDA moves by 0.2% etc. then the aggregate movement of the S&P 500 will be approx 0.10% -0.15%


If you want to know where the S&P 500 is heading to, then look into AAPL, MSFT, AMZN, NVDA primarily & simultaneously BUT this does not work vice-a-versa.

Important Question - Can the S&P 500 be manipulated ?

Answer is - Yes, Definitely the S&P 500 can be manipulated and many a times we have clearly seen that S&P 500 was manipulated in the broad daylight.


How is it possible to manipulate the S&P 500 ? Its simple, manipulate the Top 3-4 companies (or top 10 companies) of the S&P 500 (all at once or one by one) and then the other 496-497 companies won't be able to make any significant impact rather most of the companies will then start to follow the movement of the S&P 500.



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