Arezi Ratio for Oct 10

*                         9/19     9/26     10/3     10/10/22
S&P 500 Index             3873.33  3693.23  3585.62  3639.66
Trailing 12 month PE      20.24    19.33    18.78    19.13
Trail Earnings yield      4.94%    5.17%    5.32%    5.23%
Forward 12 month PE       18.76    17.93    17.37    17.76    
Fwd Earnings Yield        5.33%    5.58%    5.76%    5.63%
90 day tbill yield        3.20     3.24     3.33     3.45
10 year tbond yield       3.45%    3.69%    3.83%    3.89%
Arezi Ratio               0.65     0.63     0.62     0.66
Fed Ratio                 0.65     0.66     0.67     0.69

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 87%
stocks, 13% 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 57%.

An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 80%.

Elan

13 Likes