* 1/16 1/23 1/30 2/6/23
S&P 500 Index 3999.09 3972.61 4070.56 4136.48
Trailing 12 month PE 22.14 21.98 23.04 23.46
Trail Earnings yield 4.52% 4.55% 4.34% 4.26%
Forward 12 month PE 19.62 19.47 20.12 20.58
Fwd Earnings Yield 5.10% 5.14% 4.97% 4.86%
90 day tbill yield 4.67 4.72 4.73 4.70
10 year tbond yield 3.49% 3.48% 3.52% 3.53%
Arezi Ratio 1.03 1.04 1.09 1.10
Fed Ratio 0.68 0.68 0.71 0.73
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 65%
stocks, 35% cash this week.
Other timing indicators:
The S&P index is above its 200DMA. - Bullish
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 45%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 87%.
Elan