* 7/25 8/1 8/8 8/15/22
S&P 500 Index 3961.63 4130.29 4145.19 4280.15
Trailing 12 month PE 19.98 20.81 20.87 22.31
Trail Earnings yield 5.01% 4.81% 4.79% 4.48%
Forward 12 month PE 18.66 19.42 19.82 20.74
Fwd Earnings Yield 5.36% 5.15% 5.05% 4.82%
90 day tbill yield 2.49 2.41 2.58 2.63
10 year tbond yield 2.77% 2.67% 2.83% 2.84%
Arezi Ratio 0.50 0.50 0.54 0.59
Fed Ratio 0.52 0.52 0.56 0.59
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 91%
stocks, 9% cash this week.
Other timing indicators:
The S&P index is below its 200DMA. - Bearish
We are in the May-Oct part of the year. - Bearish
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 61%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 82%.
Elan