* 1/3 1/10 1/17 1/24/22
S&P 500 Index 4766.18 4677.03 4662.85 4397.94
Trailing 12 month PE 24.92 24.36 24.21 22.79
Trail Earnings yield 4.01% 4.11% 4.13% 4.39%
Forward 12 month PE 22.71 22.28 22.30 21.03
Fwd Earnings Yield 4.40% 4.49% 4.48% 4.76%
90 day tbill yield 0.06 0.10 0.13 0.17
10 year tbond yield 1.52% 1.76% 1.78% 1.75%
Arezi Ratio 0.01 0.02 0.03 0.04
Fed Ratio 0.35 0.39 0.40 0.37
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 118%
stocks, -18% 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 normal. - Bullish
A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 98%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 109%.
Elan