[lovich]

It’s a benchmark of the market under certain rules, like having multiple quarters of earnings for the market to value them at.

These companies want special exceptions. If you are an exception why should you be included in a benchmark? At best they should have an asterisk against their name like Sammy Sosa or Mark McGuire if they are not following the same rules.

[tristanj]

Your baseball cheating analogy makes no sense here. Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally. S&P rules are supposed to make the index reflect the market. Totally different.

The profitability requirement is something made up by the S&P committee. If that rule ends up excluding trillions in market cap, the rule has defeated its own purpose. The 12 months of profitability requirement punishes high-growth companies that invest their FCF into growing the business vs taking profits.

It excludes companies like Amazon, which when ran by Bezos, was famously unprofitable and invested all free cash flow into growing the business and never turned a significant profit until >20 years after its founding.

[lovich]

> Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally.

> The profitability requirement is something made up by the S&P committee.

Those are both equally made up. In this case the rules are being changed for new entrants into the market such as SpaceX for the Nasdaq and other benchmarks that are allowing it for that none of the previous companies in said index were allowed to get in under.

And since it’s 15 days and I know most companies have lockout terms on the order of months for various levels of stock, I’m hesitant to believe this won’t modify the benchmarks beyond what has happened with previous inclusions.

`JumpCrisscross’s reply to one of my other comments on this thread in regards to the S&P being a committee based decision actually has had me pause to think, but your argument that the rules are arbitrary so it can’t be cheating like my baseball analogy fails to land.

[tristanj]

Baseball rules exist to prevent cheating. The S&P rules exist so the index can accurately reflect the market. When S&P rules end up excluding a significant part of the market with trillions in real market cap, that means the rules are badly designed and broken by its own standard. You're trying to compare updating badly written S&P 500 rules to cheating, which makes no sense at all. They are completely different.

And calling out how the rules are being changed for new entrants into the market such as SpaceX on Nasdaq proves my point. Index providers are already quietly admitting their criteria are too rigid.

Even S&P adjusted their rules to allow SpaceX into the index, although only for the total market index.

https://press.spglobal.com/2026-06-04-S-P-Dow-Jones-Indices-...

[tankenmate]

"The S&P rules exist so the index can accurately reflect the market", the rules exist to reflect a subset of the market, and the committee chooses that subset. It's their subset so they get to set the rules, you don't have to use it if you don't want to. If you don't like that subset then create your own index. Then you just need to convince others to use it.

[tristanj]

Per the S&P 500 website, the claimed subset of the market is "U.S. large-cap equities". S&P claims their index is "best single gauge of U.S. large-cap equities". But, it's clear that given the current iteration of the rules, none of the major upcoming IPOs of Spacex, Anthropic, or OpenAI are eligible for S&P500 inclusion, and they likely will not be for years.

Claiming to have the "best single gauge of U.S. large-cap equities", yet having rules that exclude three of the top 20 largest U.S large-cap equities which make up ~5% of the total market cap of the U.S. stock market, means your benchmark is inaccurate by my book.

[tankenmate]

"means your benchmark is inaccurate by my book.", and like The Dude says "Yeah? Well, you know, that's just like uh, your opinion, man."

Create your own benchmark, and you can say it is a subset of "U.S. large-cap equities" and "best single gauge of U.S. large-cap equities" and let the market decide who does a better job.

[lovich]

> Baseball rules exist to prevent cheating.

> The S&P rules exist so the index can accurately reflect the market.

I personally believe that accurately reflecting a market involves not allowing cheating. I personally believe that getting to change the rules so that your IPO gets included before the general market can discern your value because of your connections to the benchmarks is cheating.

If you want to disagree with me on these points then please do so, but understand why I am claiming that this behavior is cheating.

[tristanj]

> getting to change the rules so that your IPO gets included before the general market can discern your value because of your connections to the benchmarks is cheating.

I disagree with you because you are vastly exaggerating the scope and effects of the proposed rule change. S&P was going to decrease their minimum index inclusion time from 12 months to 6 months. 6 months is far more than enough time for the market to decide a fair price of an equity. The rule change never ended up happening, hence this post.

There is zero "cheating", I don't understand why you keep harping on that.

[lovich]

> 6 months is far more than enough time for the market to decide a fair price of an equity.

I disagree.

> The rule change never ended up happening, hence this post. There is zero "cheating", I don't understand why you keep harping on that.

The S&P ended up not making the change. Other benchmarks like the Nasdaq did, and they went way faster than 6 months. The Nasdaq specifically is going to allow these firms to be included after 15 days.

[anonymars]

> 6 months is far more than enough time for the market to decide a fair price of an equity

6 months from when? The IPO with its minimal float?

[ywvcbk]

> accurately reflect the market. When S&P rules end up excluding a significant part of the market with trillions

Define what that means? The weights are based on the value of shares available publicly, not market cap. So even if included SpaceX wouldn't even be in the top 20 and have a lower weight than Johson & Johson.

A lot of what people are saying here seems to be based on a misconception of what S&P 500 is supposed to be. Maybe it became the most popular index because of those rigid rules?

[lelanthran]

> S&P rules are supposed to make the index reflect the market.

Where did you find that? Link?

I ask because common understanding is that the index is a stable tracker of the market, specifically to exclude volatility.

IOW, it reflects a smoothed market, not a point-in-time-with-daily-granularity market. I would really like to know where you read what you read.

[tristanj]

The S&P 500 brochure describes itself as "the best single gauge of large-cap U.S. equities". That language implies they act as a benchmark, which I find questionable, given that based on their current eligibility requirements, it would exclude all three of SpaceX, Anthropic, and OpenAI.

All three companies are in the top 10 largest companies in the US by market cap, based on their current valuations. If these companies maintain their valuations over the next year, they'd still be ineligible under current rules. Because none of them are GAAP, they're all heavily reinvesting cash-flow into growth. These companies may be excluded from the S&P500 for potentially years, until they reach 12 months of profitability.

A benchmark of the U.S. stock market that excludes multiple of the 10 largest U.S. companies cannot be taken seriously.

https://www.spglobal.com/spdji/en/brochure/article/sp-500-br...

[lovich]

It currently would exclude all 3 companies because they aren’t publicly traded.

Post IPO they wouldn’t immediately be included. Every benchmark I am aware of doesn’t immediately include companies because there is a decent amount of volatility shortly after, especially due to all the internal stockholders who have restrictions on how quickly they can sell their stock and routinely dump their stock en masse the second those restrictions are lifted.

All the hubbub about benchmarks like Nasdaq right now is because they are altering their rules for these companies in particular and including them much earlier and before what are standard restrictions for employees to sell their stock.

The fear is that massive pension funds whose rules have them rebalance into these benchmarks will be buying up these stocks before that dump and the public’s retirement funds will be made into bagholders.

> Because none of them are GAAP, they're all heavily reinvesting cash-flow into growth. > A benchmark of the U.S. stock market that excludes multiple of the 10 largest U.S. companies cannot be taken seriously.

Ok, now I know not to take you seriously if you can recognize companies aren’t following GAAP but think it’s wrong to not treat them the same. I don’t even know if it’s true that they aren’t following GAAP, but everytime a company tries to argue why they aren’t following GAAP but instead their own magic formula that shows how successful they are, we get another Enron or Theranos.

[lelanthran]

> The S&P 500 brochure describes itself as "the best single gauge of large-cap U.S. equities". That language implies they act as a benchmark,

Okay, but isn't that gauge measured over a specific timeframe? Since investors in this index have timeframes in years/decades not days, why would you expect the index to have a ranularity of days?

> That language implies they act as a benchmark, which I find questionable, given that based on their current eligibility requirements, it would exclude all three of SpaceX, Anthropic, and OpenAI.

Sure, but it excludes lots of companies. This specific index is risk-averse and caters to risk-averse investors; regardless of whether the company is SpaceX, Anthropic or OpenAI, rick-averse investors are going to shy away from any share that hasn't been traded long enough for price-discovery to kick in.

[ywvcbk]

S&P 500 weights are based the value of shares available on the public market not the market cap. Based on that SpaceX will be nowhere near the top 10.

Do you think their valuations wouldn't fall dramatically if they were willing to float a significant proportion of their shares on the market anytime soon.

[tristanj]

I addressed that exact point here https://news.ycombinator.com/item?id=48407542

Based on previous IPOs, SpaceX will grow to ~40% float by 12 months, thus if it keeps its current valuation unchanged, will remain near the top 10 spot.

[ywvcbk]

Assuming it's share price does not drop significantly because of that.

[rileymat2]

What is it a benchmark for? All investable public stocks or the economy writ large?

[ywvcbk]

Neither? What makes you think it was supposed to be a benchmark for either.

Amongst other thing weights are based on the value of shares that are traded publicly, not market cap.