Arezi Ratio for Feb 7


*                         1/17     1/24     1/31     2/7/22
S&P 500 Index             4662.85  4397.94  4431.85  4500.53
Trailing 12 month PE      24.21    22.79    22.79    22.93
Trail Earnings yield      4.13%    4.39%    4.39%    4.36%
Forward 12 month PE       22.30    21.03    20.58    20.31
Fwd Earnings Yield        4.48%    4.76%    4.86%    4.92%
90 day tbill yield        0.13     0.17     0.19     0.23
10 year tbond yield       1.78%    1.75%    1.78%    1.93%
Arezi Ratio               0.03     0.04     0.04     0.05
Fed Ratio                 0.40     0.37     0.37     0.39

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 117%
stocks, -17% 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 normal. - Bullish

A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 107%.

An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 118%.

Elan

17 Likes