I've long wondered about the philosophy behind the selection of stocks in the S&P 500.
I've assumed that it was intended as a market indicator, with the selection being those that best paralleled the market as a whole, but many mutual funds are based on it, and many others are compared to it. This would indicate that the selection method chooses stocks that are doing better than the market as a whole.
As an example of what I'm puzzled about, if one stock in the S&P500 were to suddenly skyrocket, then if the S&P500 goal is to have the best mix of stocks, then it would be kept in the 500, but if their goal is to have the most representative mix of stock, it would have to be replaced.
What does S&P do in such a case?