* 1/2 1/9 1/16 1/23/23
S&P 500 Index 3839.50 3895.08 3999.09 3972.61
Trailing 12 month PE 21.21 21.51 22.14 21.98
Trail Earnings yield 4.71% 4.65% 4.52% 4.55%
Forward 12 month PE 18.89 19.08 19.62 19.47
Fwd Earnings Yield 5.29% 5.24% 5.10% 5.14%
90 day tbill yield 4.42 4.67 4.67 4.72
10 year tbond yield 3.88% 3.55% 3.49% 3.48%
Arezi Ratio 0.94 1.00 1.03 1.04
Fed Ratio 0.73 0.68 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 above its 200DMA. - Bullish (by a whisker)
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 48%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 89%.
Elan