The S&P 500 is not a portfolio in which every company receives the same allocation. S&P Dow Jones Indices weights the benchmark by float-adjusted market capitalisation, so companies with the largest value of publicly tradable shares have the greatest influence.
That structure explains why a handful of mega-cap stocks can drive a large share of the index's daily move. A 5% rise in one of the biggest constituents matters far more than the same move in a company near the bottom of the index.
Float adjustment changes the raw market-cap number
Standard market capitalisation multiplies share price by shares outstanding. Float adjustment removes large blocks that are not readily available for public trading, such as certain founder, government or controlling-owner holdings.
The aim is to make the index represent the investable market more closely. A company with a large headline market value but a tightly held share base can therefore receive less index weight than raw market cap would imply.
Concentration is a feature of the methodology
When the largest companies outperform, their weights rise automatically. That can make the index more concentrated without an index committee explicitly deciding to favour one sector or theme.
The reverse is also true. If mega-cap stocks underperform, their weights shrink. Market-cap weighting therefore follows the market's own valuation decisions.
Equal weight answers a different question
S&P also publishes an equal-weight version of the S&P 500. It holds the same broad constituent universe but resets companies to equal allocations at rebalance dates.
Comparing the cap-weighted and equal-weight versions is one way to judge market breadth. When the standard index strongly outperforms equal weight, leadership is often concentrated in the largest companies.