* 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