* 4/4 4/11 4/18 4/25/22
S&P 500 Index 4545.86 4488.28 4392.59 4271.78
Trailing 12 month PE 22.80 22.48 22.11 21.48
Trail Earnings yield 4.39% 4.45% 4.52% 4.66%
Forward 12 month PE 21.08 20.77 20.33 19.74
Fwd Earnings Yield 4.74% 4.81% 4.92% 5.07%
90 day tbill yield 0.53 0.70 0.79 0.83
10 year tbond yield 2.38% 2.72% 2.83% 2.90%
Arezi Ratio 0.12 0.16 0.17 0.18
Fed Ratio 0.50 0.57 0.58 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 111%
stocks, -11% 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 91%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 105%.
Elan