* 12/12 12/19 12/26 1/2/23
S&P 500 Index 3934.38 3852.36 3844.82 3839.50
Trailing 12 month PE 21.54 21.15 21.18 21.21
Trail Earnings yield 4.64% 4.73% 4.72% 4.71%
Forward 12 month PE 19.27 18.99 18.96 18.89
Fwd Earnings Yield 5.19% 5.27% 5.27% 5.29%
90 day tbill yield 4.31 4.31 4.34 4.42
10 year tbond yield 3.57% 3.48% 3.75% 3.88%
Arezi Ratio 0.93 0.91 0.92 0.94
Fed Ratio 0.69 0.66 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 73%
stocks, 27% 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 43%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 82%.
Elan