Jubilee: Forecasting Long-Term Growth of S&P 500 Index

Abstract

This tutorial shows how to use the jubilee package in R to forecast the 10-year and 20-year growth trajectory of S&P 500 Index. R programs are provided to run the regressions, make predictions, and plot the charts. Additionally, in order to capture the short-horizon volatility (less than 10 years), we derive a new quantity that shows the deviation between the realized index level and the forecast. Interestingly, this quantity is mean-reverting in the same frequencies as the commonly-known business cycles. We attempt to locate potential leading indicator(s) for the next bear market and recession. A few factors are explored, among which yield spread inversion is considered most important.