* 6/13 6/20 6/27 7/4/22
S&P 500 Index 3900.86 3674.84 3911.74 3825.33
Trailing 12 month PE 19.55 18.39 19.56 19.01
Trail Earnings yield 5.12% 5.44% 5.11% 5.26%
Forward 12 month PE 17.78 16.68 17.72 17.02
Fwd Earnings Yield 5.63% 5.99% 5.64% 5.87%
90 day tbill yield 1.39 1.63 1.73 1.73
10 year tbond yield 3.15% 3.25% 3.13% 2.88%
Arezi Ratio 0.27 0.30 0.34 0.33
Fed Ratio 0.56 0.54 0.55 0.49
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 104%
stocks, -4% 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 74%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 90%.
Elan