The S&P 500 index is calculated by taking the total market capitalization of the 500 companies included in the index and dividing it by a factor called the "index divisor." The market capitalization of each company is calculated by multiplying the number of shares outstanding by the current market price per share. The index divisor is 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 formula for calculating the level of the S&P 500 index is:
Index level = (Total market capitalization of 500 companies) / (Index divisor)
The index is weighted by market capitalization, meaning that companies with a higher market value have a greater impact on the index's performance. 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.
