* 5/2 5/9 5/16 5/23/22
S&P 500 Index 4131.93 4123.34 4023.89 3901.36
Trailing 12 month PE 20.54 20.66 20.03 19.54
Trail Earnings yield 4.87% 4.84% 4.99% 5.12%
Forward 12 month PE 18.65 18.60 17.47 17.84
Fwd Earnings Yield 5.36% 5.38% 5.72% 5.61%
90 day tbill yield 0.85 0.85 1.03 1.03
10 year tbond yield 2.89% 3.12% 2.93% 2.78%
Arezi Ratio 0.17 0.18 0.21 0.20
Fed Ratio 0.54 0.58 0.51 0.50
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