* 5/9 5/16 5/23 5/30/22
S&P 500 Index 4123.34 4023.89 3901.36 4158.24
Trailing 12 month PE 20.66 20.03 19.54 20.85
Trail Earnings yield 4.84% 4.99% 5.12% 4.80%
Forward 12 month PE 18.60 17.47 17.84 18.94
Fwd Earnings Yield 5.38% 5.72% 5.61% 5.28%
90 day tbill yield 0.85 1.03 1.03 1.08
10 year tbond yield 3.12% 2.93% 2.78% 2.74%
Arezi Ratio 0.18 0.21 0.20 0.22
Fed Ratio 0.58 0.51 0.50 0.52
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 109%
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 79%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 93%.
Elan