S&P 500 returns revisited

TL;DR

This paper revisits models predicting S&P 500 returns, testing their accuracy from 2003 to 2011, and refines them based on economic dependencies and historical market behavior.

Contribution

It updates and tests previous models of S&P 500 returns, incorporating economic factors and market events to improve prediction accuracy.

Findings

2008 trough and 2009 rally accurately predicted

Model suggests decline into 2011 after 2010 rally

Dependence on real GDP improved model relevance

Abstract

The predictions of the S&P 500 returns made in 2007 have been tested and the underlying models amended. The period between 2003 and 2008 should be described by the dependence of the S&P 500 stock market index on real GDP because the population pyramid was highly inaccurate. The 2008 trough and 2009 rally are well predicted by the original model, however. The rally will end in March/April 2010 and the S&P 500 level will be decreasing into 2011. This prediction should validate the model.