S&P 500 vs. S&P 400: Key Differences and How They Compare

The S&P 500 and S&P 400 are both widely followed stock market indices, but they represent different segments of the market. Investors compare them to analyze how large-cap and mid-cap stocks perform relative to each other, influencing investment strategies, risk levels, and potential returns.

While both indices track U.S. companies, their composition and characteristics set them apart. Understanding these distinctions helps investors make informed decisions about portfolio diversification and market exposure.

Capitalization Range

The S&P 500 consists of large-cap companies, while the S&P 400 focuses on mid-cap stocks. Market capitalization, calculated by multiplying a company’s stock price by its total outstanding shares, determines inclusion. As of 2024, S&P 500 companies generally have market capitalizations exceeding $14 billion, though this threshold fluctuates. The S&P 400 includes companies with market values between approximately $3.6 billion and $14 billion.

This size difference affects how the indices respond to economic conditions. Large-cap stocks tend to be more stable, benefiting from established revenue streams and global operations. Mid-cap stocks, while often more volatile, can offer higher growth potential as they expand into new markets or develop innovative products. A mid-cap company in the S&P 400 might be a growing software firm, while a large-cap company in the S&P 500 could be a multinational corporation with decades of market dominance.

Eligibility Requirements

Both indices have specific criteria for inclusion. Companies must be profitable, with positive earnings in the most recent quarter and the last four consecutive quarters. This requirement helps maintain stability by excluding firms with consistent losses.

Liquidity and trading volume also play a role. Stocks must have a sufficient number of publicly available shares, known as float-adjusted market capitalization, to ensure broad investor access. Additionally, companies must be listed on the NYSE, Nasdaq, or Cboe BZX, reinforcing transparency and regulatory oversight.

The S&P Dow Jones Indices committee ultimately decides which companies are included. Beyond financial and liquidity thresholds, companies are evaluated based on sector representation, financial viability, and overall market impact. Even if a company qualifies numerically, it may be excluded if it does not align with the index’s broader objectives.

Weighting Approaches

Both indices use a market capitalization-weighted methodology, meaning a company’s influence is determined by its float-adjusted market capitalization. This prevents companies with large insider holdings from disproportionately affecting index movements.

In the S&P 500, the largest stocks—often in technology or consumer sectors—can drive overall performance. Companies like Apple, Microsoft, and Amazon have had an outsized influence in recent years. The S&P 400, with smaller firms, has a more balanced distribution of weight across its constituents, reducing dependence on a few dominant stocks.

Rebalancing occurs regularly to maintain accurate weightings. If a company’s market value grows beyond the S&P 400’s upper threshold, it may move to the S&P 500. Declining valuations can result in removal or reassignment. These adjustments keep the indices representative of their intended market segments.

Sector Distribution

The S&P 500 is heavily weighted toward sectors with high market capitalization, such as information technology, healthcare, and financials. The technology sector alone often exceeds 25% of the index’s total weight, with companies like Apple and Microsoft exerting significant influence.

The S&P 400 has a more balanced sector distribution, with greater representation from industrials, consumer discretionary, and materials. Mid-cap companies often operate in niche markets or are in expansion phases, leading to a more diverse industry mix. While the S&P 500 includes multinational banks, the S&P 400 features regional banks and specialty financial firms that cater to specific markets. This makes the S&P 400 more sensitive to domestic economic trends, as mid-cap firms typically generate a larger portion of their revenue from the U.S. economy.

Liquidity Factors

Liquidity, or how easily a stock can be bought or sold without significantly impacting its price, differs between the indices. Companies in the S&P 500 generally have higher average daily trading volumes, allowing investors to execute large trades with minimal price disruption. This makes the index attractive to institutional investors, such as mutual funds and pension funds, which require liquidity to manage portfolios efficiently.

Stocks in the S&P 400 typically have lower trading volumes, leading to higher bid-ask spreads and greater price fluctuations. While this can create opportunities for investors willing to accept increased volatility, it also means mid-cap stocks can experience sharper price swings during periods of market stress. Liquidity can dry up more quickly in the S&P 400, making execution costs and market impact important considerations for traders and fund managers.