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Once a month, from 1989 to 2019, David Blitzer walked into a well-appointed conference room with a view of downtown Manhattan to discuss the 500 largest and most important public companies in the U.S., the ones whose stock just about any American can buy.
Blitzer was a member of, and then chair of, the committee that makes the S&P 500. It's like the Billboard Hot 100, except instead of ranking the most popular songs in America, it lists the most valuable companies. Sabrina Carpenter wants to keep releasing pop anthems that keep her on the charts; Boeing wants to keep selling enough planes to stay in the S&P 500.
The S&P 500 is famous. It's cited constantly in newspapers and on TV; it's the basis of millions of investing-for-retirement plans. Less well-known is that S&P Global, the company that makes the S&P 500 and that employed Blitzer, is itself on the S&P 500 list.
One reason why is that S&P Global makes hundreds of millions of dollars every year in revenue just from the S&P 500. The company has other larger businesses, like rating bonds, but its indexing business is particularly lucrative and profitable.
How do you profit wildly from a list of stocks that seemingly anyone could make? And why don't competitors erode those profits? Answering those questions requires a better understanding of the infrastructure behind Americans' go-to investing plan. It also shows how millions of Americans have, often unknowingly, bet their life savings on a few tech giants and the hundreds of billions of dollars they've invested in artificial intelligence.
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The one true index
The S&P 500 is what's known as a stock market index, and its purpose is to be a barometer.
Is the stock market up today? Was it down last week? Until the late 1800s, those were not easy questions to answer. But in 1896, financial journalists Charles Dow and Edward Jones created the Dow Jones index by averaging the share price of 12 large public companies. (It later expanded to 30 large stocks.) They used it to inform their columns and increase sales of their flagship paper, The Wall Street Journal.
In 1957, S&P released a competitor: its now-iconic list of 500 stocks. At the time, it was a triumph of new technology. Tracking 500 stocks and updating the index took much more work and computing power, especially since S&P updated the index hourly, rather than just once per day. (Now it's updated constantly, in almost real time.)
Also, the S&P 500 accounts for the size of each company and the number of shares. It was an improvement on the Dow Jones Industrial Average's price-weighted approach. In the Dow, companies with higher share prices have a larger impact on the index. So Goldman Sachs, whose share price is around $802, is much more important than Apple, whose share price is around $245.50.
In contrast, the S&P 500 is weighted for market capitalization, the total amount invested in each company (the share price x number of shares outstanding). So if Netflix stock is up 1% and Apple is down 1%, that will nudge the S&P 500 down. Which makes sense! Way more people have way more money invested in Apple ($3.5 trillion) than Netflix (just over $500 billion). So, overall, investors had a down day.
The S&P 500 is widely considered superior to the Dow for tracking the state of the stock market. Nevertheless, when David Blitzer joined the S&P 500 committee in 1989, the Dow was still the definitive stock market index.
People in finance respected the S&P 500 — many professional investors used the index as a benchmark to see whether they were "beating the market," and they paid for access to the S&P 500 and related data. But it wasn't much money. Just a few years earlier, in 1982, "the income was zilch, almost," Blitzer says.
So what changed? Three new financial products helped turn the S&P 500 into the dominant index and a golden goose:
- In 1982, the Chicago Mercantile Exchange started offering S&P 500 futures, primarily as a way to help traders hedge, or protect themselves from a recession that would hurt most portfolios. By shorting S&P 500 futures, investors can essentially pay a small fee (when the index goes up) but then get a big payoff if the S&P 500 crashes.
- In 1982, the investment-management company Vanguard started offering S&P 500 index funds — basically, an easy way to invest in all the stocks of the S&P 500. (Here's a Planet Money episode about Vanguard and index funds.)
- In 1993, the financial-services company State Street launched an S&P 500 ETF (exchange-traded fund) known by its acronym, SPY. Like Vanguard's index fund, SPY was an easy way to invest in every S&P 500 company. But people could buy or sell SPY like a single stock, which made it easier to access than an index fund.
In each case, the companies paid to use the S&P 500 name, data and methodology. That fee was based on how much money people invested in S&P 500 index funds and ETFs (or spent on S&P 500 futures). So if a schoolteacher invested $30,000 of retirement savings in Vanguard's S&P 500 fund, Vanguard might charge that teacher $15 per year and give S&P a chunk of that $15.
These novel products did not immediately make the S&P 500 a gold mine. The products were new, and investors were skeptical. So S&P's fees were modest. Blitzer says that when he became chair of the committee, in 1995, there were around 25 employees devoted to the S&P 500 and two other indexes they published.
But "it grew incredibly," he adds. "You know, it was a good ride."
A key period, Blitzer says, came in the late 1990s, as the dot-com bubble inflated. New internet companies like Yahoo grew and grew, and Blitzer and his colleagues duly added them to the S&P 500. (Yahoo replaced Laidlaw, North America's largest bus operator. "What it says is that the internet slowly but surely is becoming a key part of the U.S. economy," Blitzer told reporters in 1999.) The manic increases in internet stock prices pushed the S&P 500 up and up.
"For 15 or 20 months, or maybe two years or more, the S&P 500 outperformed like 90% of all the mutual funds and ETFs in the market," says Blitzer.
In other words, Wall Street's elite money managers — whom Americans gladly paid fat fees every year to invest their savings for them — were making lower returns (less per dollar invested, especially after accounting for fees) from the stock market than people who'd bought SPY or Vanguard's S&P 500 index fund.
Blitzer's simple list of 500 stocks was one of the hottest portfolios on Wall Street, and getting access to it was cheap. The fees for SPY and index funds were a fraction of what elite Wall Street firms charged. So more and more families moved their retirement savings out of the hands of those active investors and into S&P 500 funds.
What they were essentially doing was betting that America's 500 largest companies would keep growing and making profits — which is a pretty good, safe bet. The creators of the index chose 500 companies because it approximated the entire stock market: S&P 500 companies typically represent more than 75% of the entire American stock market (in terms of size, or market capitalization). And even as internet and tech stocks made up a larger and larger share of the S&P 500, people who bought SPY or index funds were still well diversified, since they were also investing in energy, health care and consumer-goods companies — which cushioned their losses when the tech bubble burst.
This trend of people moving their retirement savings into index funds and ETFs has continued for decades. By the time Blitzer stepped down as chair of the S&P 500 committee in 2019, he says, their index business employed around 700 people, and they'd created so many indexes (the S&P Southeast Asia 40, the S&P Emerging Under $2 Billion, the S&P Municipal Bond Water & Sewer Index) that he legitimately did not know how many existed.
(In the early 2010s, S&P also bought a controlling stake in the Dow Jones indexes; Dow Jones & Co. retains some affiliation with the indexes, but no ownership.)
But the S&P 500 remains the crown jewel. In 2024, S&P Global earned $1.6 billion in revenue from its indexes business. Most of that revenue came from firms paying to use the S&P name for $16.6 trillion of index funds and other investments. Of that $16.6 trillion, a whopping $13 trillion came from SPY, Vanguard's S&P 500 index fund and similar investments.
Where are the S&P 500 copycats?
As a director and senior analyst at Mizuho Securities USA, Sean Kennedy closely follows seven companies so he can advise customers on whether to buy, hold or sell their stock. S&P Global is one of them.
I ask whether he ever worries about S&P's indexes business faltering. "No," he responds instantly. "I think their moat is so impenetrable," he says, that customers ask him only really about other parts of S&P Global's business.
By a "moat," Kennedy means the factors that prevent competitors from launching their own indexes and conquering S&P's castle (i.e., its customers and business).
According to Kennedy and Blitzer, that moat consists of three main factors:
- A trusted brand: The S&P 500 name is everywhere. Wall Street people know it; so do many millions of Americans investing for retirement. And it has a nearly 70-year track record of good investment returns — and of not adding a company to the list as a favor to a client. Sure, anyone could publish their own list of major U.S. stocks. But why would a company like Vanguard switch to a new, no-name index?
- Economies of scale: For anyone launching a competitor, hiring analysts to keep tabs on every large company would be expensive. Whereas for S&P, the cost of Blitzer, his committee and support staff was tiny compared with the index's revenues. Plus, that cost barely increased as revenue from the S&P 500 grew and grew. As a result, it's almost impossible to undercut the S&P 500 on price without sacrificing standards.
- A lingua franca: In finance, the S&P 500 is almost like "a common language," says Kennedy, since it's the benchmark everyone uses to compare investment returns. Just as a few languages, like English, have become more and more dominant, the S&P 500 benefits from the fact that it's easiest to have just one common benchmark.
The S&P 500 does have competitors. The London Stock Exchange Group has the Russell Indices, and MSCI publishes popular ones too. But their most prominent indexes are complements to the S&P 500, rather than competitors.
From the perspective of S&P's customers, says Kennedy, "there's really no one you can switch to."
What also sets the S&P 500 apart is the committee that Blitzer headed up for more than two decades. Even many finance experts are surprised to learn that it exists. They expect the S&P 500 to be like a formula: You calculate which companies are the 500 largest, in terms of share price and number of shares, and then publish the list.
S&P publishes its methodology on its website, but it leaves some wiggle room to achieve other goals of the index, such as mitigating turnover and keeping the list representative of the broader market.
That wiggle room was Blitzer's domain. In the early 1990s, for example, the committee held off on adding Microsoft to the index because founders Bill Gates and Paul Allen still owned more than 50% of the shares. In other cases, if two companies merged, creating one corporation large enough to make the S&P 500, the committee might similarly wait to see how the new company (and its stock price) fared before adding it.
Blitzer said in a 2020 Bloomberg podcast that they sometimes "got pounded" for these decisions but "learned to shrug our shoulders and say wait till next month."
He also suspects the committee's existence, as well as the fact that no one could fully predict the list, gave the S&P 500 some "aura." Potential changes were always a gossipy topic in business and finance. Even within the S&P office, no one knew for sure what Blitzer would announce.
Since Blitzer retired in 2019, it's now someone else's job to pick the 500 stocks and endure the criticism. (That's now easier, however, because S&P keeps all members of the committee anonymous, in part so CEOs would stop FedEx-ing them quarterly reports and financial literature to lobby for inclusion in the S&P 500.)
The biggest criticism in recent years, though, is not about a specific stock. It's that the S&P 500 no longer broadly represents the stock market. Just seven tech stocks — Alphabet, Amazon, Meta, Nvidia, Tesla, Microsoft and Apple — have grown so huge that they make up more than 30% of the S&P 500. Increasingly, when the S&P 500 goes up or down, it reflects the performance of these "Magnificent 7" tech companies.
Many economists, financial experts and money managers are concerned. Millions of people have invested trillions of dollars in S&P 500 funds with the idea that it's a well-diversified portfolio — a bet on the entire U.S. economy (or at least the large slice of it available to buy on stock markets), not a bet mostly on continued iPhone profits and AI chatbots becoming a profitable business.
There are alternatives on offer. Firms like Vanguard offer index funds and other easy ways to invest in indexes of smaller companies, midsize companies, international stock markets or the "total" U.S. stock market — or to diversify into real estate.
But as Blitzer points out, the Magnificent 7's domineering influence does not mean the S&P 500 is broken. The S&P 500 may be "pretty top heavy right now," but it has been top heavy before, in periods like the dot-com boom, and it still represents some 80% of American stock markets. The S&P 500 is doing its job: reflecting the state of the stock market and the investments everyone has decided to make.
The point of the S&P 500 and the many investments based on it is to follow the markets — to trust its crowdsourced intelligence and not second-guess it or think you individually know better — because even though markets are sometimes very wrong, trusting them has an excellent track record over the long run.
This is simply the state of our economy in 2025. Like it or not, it's increasingly a huge bet on a few tech giants and their massive investments in artificial intelligence startups, new data centers and AI being the next big thing.
Alex Mayyasi is the author of the forthcoming book Planet Money: A Guide to the Economic Forces That Shape Your Life. Sign up here to be notified about presale special offers.
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