* 7/18 7/25 8/1 8/8/22
S&P 500 Index 3863.16 3961.63 4130.29 4145.19
Trailing 12 month PE 19.15 19.98 20.81 20.87
Trail Earnings yield 5.22% 5.01% 4.81% 4.79%
Forward 12 month PE 17.26 18.66 19.42 19.82
Fwd Earnings Yield 5.79% 5.36% 5.15% 5.05%
90 day tbill yield 2.37 2.49 2.41 2.58
10 year tbond yield 2.93% 2.77% 2.67% 2.83%
Arezi Ratio 0.45 0.50 0.50 0.54
Fed Ratio 0.51 0.52 0.52 0.56
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 93%
stocks, 7% 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 63%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 84%.
Elan