Gatekeepers 🎟️

The S&P 500 captures around 80% of the total market capitalisation of US stocks, and forms the backbone of retirement accounts, pension funds, and index-tracking ETFs around the world.

But it’s not a list of the 500 biggest companies. Instead, it’s a curated index maintained by S&P Dow Jones Indices, and the decisions about who qualifies aren’t entirely mathematical.

To get in, companies must meet a strict checklist. Firms must have a market cap above $22.7 billion, consistent trading liquidity, and at least 50% of shares available to the public float. They must be US-domiciled, listed on the NYSE, Nasdaq, or Cboe, and must report positive GAAP earnings in the most recent quarter as well as across the last four. Partnerships, tracking stocks, and unusual corporate structures are excluded.

But meeting these criteria doesn’t guarantee entry. Tesla (TSLA) is a famous example. The firm crossed the size requirement years before the committee allowed it in, despite being one of the most valuable companies in the world. The committee also weighs sector balance and whether a business is ‘representative’ of the broader economy.

Behind closed doors

The index is rebalanced quarterly, usually on the third Friday of March, June, September, and December. S&P Dow Jones Indices manages the S&P 500 with a mix of rules and human judgment, laid out in it official methodology. A small committee meets regularly to review eligible candidates and make adjustments. These updates happen quarterly, but can also be triggered by mergers or bankruptcies. 

The group’s role means a handful of people in New York wield enormous influence. Over $7 trillion in assets track the S&P 500 directly, and trillions more use it as a benchmark. When the committee admits a company, those funds must buy. When a company is removed, they must sell.

It’s why the index looks different from a pure ‘top 500 by size’ list. General Electric, (GEV) once a cornerstone of American industry, fell out of the index in 2018 after years of decline. ExxonMobil (XOM) lost its place in 2020 after nearly a century as one of the dominant US stocks. These removals forced billions of dollars to be reallocated in hours.

The index effect

Companies added to the S&P 500 usually see an immediate price spike as index-tracking funds buy their shares. Analysts call it the ‘S&P Effect’. The impact varies, but firms can see a jump of nearly 15%.

Passive funds have no discretion, they must replicate the index. The sheer scale of assets tied to the S&P means this forced trading can amount to billions of dollars in a single stock.

Benefits for the firm go beyond the short-term price bump. Inclusion increases liquidity, widens the shareholder base, and makes the stock more attractive to institutional investors who benchmark against the S&P 500. Executives see inclusion as a milestone, proof they’ve graduated from growth story to establishment player.

But long-term benefits are more mixed. Studies show once the initial buying pressure fades, a company’s fundamentals dictate performance. And, of course, being in the index doesn’t shield a firm from downturns, competition, or changing investor sentiment. Sometimes the prestige of membership raises expectations that are hard to sustain.

It’s alive!

Every new addition comes at the expense of someone else. In September 2025, AppLovin (APP), Emcor (EME), and Robinhood (HOOD) will join the index, replacing Caesars (CZR), MarketAxess (MKTX), and Enphase Energy (ENPH).

Casino operator Caesars thrived during the post-pandemic reopening but has since struggled with heavy debt and slowing growth. MarketAxess has seen its market cap shrink as rising rates reshape fixed-income markets. Enphase, a solar technology firm, has faltered thanks to waning subsidies and cooling investor enthusiasm.

AppLovin, an advertising technology firm, is riding a wave of digital marketing demand. Emcor, a construction and engineering group, reflects ongoing strength in US infrastructure and industrial projects. Both firms illustrate how the committee tries to keep the index aligned with the shape of the economy, by pruning declining sectors and boosting those enjoying growth. Robinhood is a firm that became synonymous with the pandemic-era investing boom.

Membership is never permanent. Sectors that once seemed invincible can fade. Oil and gas giants, department stores, industrial conglomerates once dominated the index. Now, many are gone. The S&P 500’s churn is what makes it useful. It’s a living, breathing measure of corporate America rather than a static list.

The index industry

The S&P 500 is the most visible index, but it’s not the only one. Alongside S&P Dow Jones, two other giants – MSCI and FTSE Russell – also dominate index creation. Together, these three firms shape the benchmarks that pension funds, insurers, sovereign wealth funds, and ETFs track.

Their influence extends beyond US equities. When MSCI reclassified Saudi Arabia from ‘frontier’ to ‘emerging market’ status in 2019, global capital flowed in. When it gradually increased China’s weighting in its emerging markets index, hundreds of billions followed. FTSE Russell has had similar effects in global bond markets, where its decisions on government debt eligibility can move yields.

Derivatives and securities exchange network Cboe (CBOE) plans to launch futures and options on a new Cboe Magnificent 10 Index. The index is a thematic, equal-weighted benchmark designed to measure the price return of 10 US-listed large-cap stocks – all the Magnificent 7 stocks, as well as Advanced Micro Devices (AMD), Broadcom (AVGO), and Palantir (PLTR).

Indices aren’t passive at all. It is capital allocation by committee. And the decisions made by these committees can have a greater immediate effect on markets than government policies or central banks.

On the door

The S&P 500 was created in 1957 as a way to capture the performance of corporate America in a single number. In practice, it has become a mechanism that channels trillions of dollars of savings into a defined set of companies, and a signal of corporate legitimacy that firms find hard to ignore.

Index providers would argue they are neutral referees, applying rules to reflect the market. But the reality is a small group of decision-makers decides who qualifies, who leaves, and when. Those judgments ripple through portfolios from 401(k)s to sovereign wealth funds.

Indexes are human constructs, and the human choices behind them matter. The churn of the S&P 500 shows how quickly corporate fortunes can change, but it also underlines the concentration of influence in the hands of a few gatekeepers.

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