* 2/14 2/21 2/28 3/7/22
S&P 500 Index 4418.64 4348.87 4384.65 4328.87
Trailing 12 month PE 22.47 21.94 22.41 22.06
Trail Earnings yield 4.45% 4.56% 4.46% 4.53%
Forward 12 month PE 19.91 20.24 20.89 20.40
Fwd Earnings Yield 5.02% 4.94% 4.79% 4.90%
90 day tbill yield 0.36 0.35 0.33 0.34
10 year tbond yield 1.92% 1.92% 1.97% 1.74%
Arezi Ratio 0.08 0.08 0.07 0.07
Fed Ratio 0.38 0.39 0.41 0.36
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 116%
stocks, -16% 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 96%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 108%.
Elan