The retailer, which trades on Nasdaq, will exit the index when the market closes on Sept. 4. LyondellBasell, based in the Netherlands, will take its place.
Sears has been wracked by stressed sales, store closures, brand spinoffs and consumer skepticism. But its retail struggles didn't cause its expulsion from the S&P club.
Instead, the number of shares Sears made available to the public, known as the "public float," "has been well below the 50% threshold for inclusion for an extended period of time and is no longer considered representative of the index," according to a statement from S&P Dow Jones Indices.
As a result, Sears may drop off the trading radar for many indexed funds that use the S&P 500 as a bellwether.
Sears, in a statement, said it is "disappointed" in the decision but stressed that the action does not reflect "the valuation or performance of the company."
"We would also highlight that S&P recently boosted Sears Holdings' credit ratings outlook to stable from negative, saying the company had improved its liquidity through our financial and operational discipline," the company said.
Sears stock has swung wildly in the last 52 weeks, trading between $28.89 a share and $85.90 a share. In midday trading in New York, the retailer's stock was down nearly 8%, or $4.50, to $52.95 a share.