The Standard And Poor’s 500

The Standard And Poor’s 500 index, also known as the S&P 500 or simply S&P, is a stock market index of 500 companies with the largest market capitalization listed on the New York Stock Exchange or the Nasdaq Composite. The S&P 500 is a large-cap index, meaning that it lists the largest U.S. companies and excludes small and mid-size companies. As these large-cap companies often serve as representatives of their respective industries, the S&P 500 is widely believed to be one of the best representations of the stock market performance across all sectors and industries.

The index was first introduced on February 27, 1957. How the S&P 500 Works

The S&P 500 index is a float-adjusted market-cap weighted index where companies with the largest market capitalizations have more influence over the index. Being float-adjusted, the index is continuously recalculated based on the shares trading. The number of shares outstanding is reduced to exclude closely held shares from the index calculation because such shares are not available to investors.

The index is calculated by taking the sum of the adjusted market capitalization of all S&P 500 stocks and then dividing it with an index divisor. The divisor is a proprietary figure developed by the Standard & Poor’s. It serves to ensure that any changes in shares outstanding, capital actions, adding or deleting stocks to the index won’t affect the level of the index. For this reason the index is adjusted to keep the index relevant to stock market values when there are stock splits, special dividends, or spinoffs that could affect the value of the S&P 500.

Divisor adjustments are made “after the close”. This means that closing prices are used to calculate the new divisor based on whatever changes have been made. With prices constant, any change that changes the total market value included in the index, such as changes to the number of shares, will require a divisor adjustment.