* 4/25 5/2 5/9 5/16/22
S&P 500 Index 4271.78 4131.93 4123.34 4023.89
Trailing 12 month PE 21.48 20.54 20.66 20.03
Trail Earnings yield 4.66% 4.87% 4.84% 4.99%
Forward 12 month PE 19.74 18.65 18.60 17.47
Fwd Earnings Yield 5.07% 5.36% 5.38% 5.72%
90 day tbill yield 0.83 0.85 0.85 1.03
10 year tbond yield 2.90% 2.89% 3.12% 2.93%
Arezi Ratio 0.18 0.17 0.18 0.21
Fed Ratio 0.57 0.54 0.58 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 110%
stocks, -10% 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 80%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 94%.
Elan