* 6/27 7/4 7/11 7/18/22
S&P 500 Index 3911.74 3825.33 3899.38 3863.16
Trailing 12 month PE 19.56 19.01 19.36 19.15
Trail Earnings yield 5.11% 5.26% 5.17% 5.22%
Forward 12 month PE 17.72 17.02 17.48 17.26
Fwd Earnings Yield 5.64% 5.87% 5.72% 5.79%
90 day tbill yield 1.73 1.73 1.98 2.37
10 year tbond yield 3.13% 2.88% 3.09% 2.93%
Arezi Ratio 0.34 0.33 0.38 0.45
Fed Ratio 0.55 0.49 0.54 0.51
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 97%
stocks, 3% cash this week.
Other timing indicators:
The S&P index is below its 200DMA. - Bearish
We are in the May-Oct part of the year. - Bearish
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 67%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 86%.
Elan