* 12/26 1/2 1/9 1/16/23
S&P 500 Index 3844.82 3839.50 3895.08 3999.09
Trailing 12 month PE 21.18 21.21 21.51 22.14
Trail Earnings yield 4.72% 4.71% 4.65% 4.52%
Forward 12 month PE 18.96 18.89 19.08 19.62
Fwd Earnings Yield 5.27% 5.29% 5.24% 5.10%
90 day tbill yield 4.34 4.42 4.67 4.67
10 year tbond yield 3.75% 3.88% 3.55% 3.49%
Arezi Ratio 0.92 0.94 1.00 1.03
Fed Ratio 0.71 0.73 0.68 0.68
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 68%
stocks, 32% 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 38%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 79%.
Elan