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How is the S&P 500 yearly performance calculated?

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Quick Answer

The yearly performance of the Standard and Poor's 500 index is based on the formula ((index value at end of year)/(index value at beginning of year))?(1/(number of years))-1. The index covers a diverse sample of the public stock markets to help investors gauge the economy's overall health.

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Full Answer

The Standard and Poor's 500 index measures the performance of 500 public companies listing their stock on the NASDAQ and NYSE markets. The index is weighted to give larger companies more of an impact on the overall performance. The value of the index is based on the total market capitalization of all 500 member companies divided by a divisor that is estimated to be $8.9 billion in 2015. The exact value of the divisor is proprietary information known only to Standard and Poor's.

A selection committee chooses the companies that make up the S&P 500 index. To become eligible for selection, a company must trade at least 250,000 shares monthly in the most recent six months, market capitalization more than $5.3 billion and an annual dollar value traded to float-adjusted market capitalization over 1.0. The committee may change the composition of the index periodically to keep up with changes in the financial markets.

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