* 5/16 5/23 5/30 6/6/22
S&P 500 Index 4023.89 3901.36 4158.24 4108.54
Trailing 12 month PE 20.03 19.54 20.85 20.62
Trail Earnings yield 4.99% 5.12% 4.80% 4.85%
Forward 12 month PE 17.47 17.84 18.94 18.70
Fwd Earnings Yield 5.72% 5.61% 5.28% 5.35%
90 day tbill yield 1.03 1.03 1.08 1.21
10 year tbond yield 2.93% 2.78% 2.74% 2.96%
Arezi Ratio 0.21 0.20 0.22 0.25
Fed Ratio 0.51 0.50 0.52 0.55
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 108%
stocks, -8% 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 78%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 93%.
Elan