* 11/21 11/28 12/5 12/12/22
S&P 500 Index 3965.34 4026.12 4071.70 3934.38
Trailing 12 month PE 21.48 21.89 22.19 21.54
Trail Earnings yield 4.66% 4.57% 4.51% 4.64%
Forward 12 month PE 19.47 19.79 19.98 19.27
Fwd Earnings Yield 5.13% 5.05% 5.01% 5.19%
90 day tbill yield 4.34 4.41 4.34 4.31
10 year tbond yield 3.82% 3.68% 3.51% 3.57%
Arezi Ratio 0.93 0.96 0.96 0.93
Fed Ratio 0.74 0.73 0.70 0.69
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 74%
stocks, 26% 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 inverted. - Bearish
A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 44%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 82%.
Elan