The S&P 500 index is calculated using a market capitalization weighted methodology. This means that the index is determined by the market capitalization of the 500 companies included in the index. Market capitalization is the total value of a company's outstanding shares of stock, which is calculated by multiplying the number of shares outstanding by the current market price per share.
To calculate the S&P 500 index, the market capitalization of each company is first calculated. The sum of the market capitalizations of all 500 companies is then divided by a divisor, which is a proprietary number that is designed to adjust for changes in the market value of the companies over time. The resulting number is the S&P 500 index value.
The S&P 500 index is also adjusted periodically to ensure that changes in market capitalization due to factors such as stock splits, mergers, and acquisitions do not affect the level of the index. The index is also reviewed periodically to determine whether any changes need to be made to the list of companies included in the index.
The exact methodology for calculating the S&P 500 index is proprietary and is maintained by S&P Dow Jones Indices, which is a division of S&P Global.
