* 10/17 10/24 10/31 11/7/22
S&P 500 Index 3583.07 3752.75 3901.06 3770.55
Trailing 12 month PE 18.85 19.71 20.65 20.04
Trail Earnings yield 5.31% 5.07% 4.84% 4.99%
Forward 12 month PE 17.46 17.81 18.89 18.50
Fwd Earnings Yield 5.73% 5.61% 5.29% 5.41%
90 day tbill yield 3.81 4.09 4.18 4.21
10 year tbond yield 4.00% 4.21% 4.02% 4.17%
Arezi Ratio 0.72 0.81 0.86 0.84
Fed Ratio 0.70 0.75 0.76 0.77
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 78%
stocks, 22% 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 inverted. - Bearish
A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 48%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 85%.
Elan