* 3/21 3/28 4/4 4/11/22
S&P 500 Index 4463.12 4543.06 4545.86 4488.28
Trailing 12 month PE 22.41 22.80 22.80 22.48
Trail Earnings yield 4.46% 4.39% 4.39% 4.45%
Forward 12 month PE 20.75 21.08 21.08 20.77
Fwd Earnings Yield 4.82% 4.74% 4.74% 4.81%
90 day tbill yield 0.42 0.55 0.53 0.70
10 year tbond yield 2.14% 2.48% 2.38% 2.72%
Arezi Ratio 0.09 0.12 0.12 0.16
Fed Ratio 0.44 0.52 0.50 0.57
The Arezi Ratio is the 90 day tbill yield divided by the trailing
earnings yield of the S&P500. A low ratio means that stocks are undervalued.
The “Fed Ratio” is the 10 year treasury bond yield divided by the
forward estimated operating earnings yield of the S&P500. A low ratio
means that stocks are undervalued. Thus, a ratio of 0.71 for example
means, according to Yardeni, that stocks are cheaper than “fair value”
by 29%.
The ‘S=120-50*Arezi Ratio’ formula indicates an allocation of 112%
stocks, -16% cash this week.
Other timing indicators:
The S&P index is below its 200DMA. - Bearish
We are in the Nov-Apr part of the year. - Bullish
The trailing PE ratio of the S&P is above 17. - Bearish
The treasury yield curve is normal. - Bullish
A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 92%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 105%.
Elan