* 9/26 10/3 10/10 10/17/22
S&P 500 Index 3693.23 3585.62 3639.66 3583.07
Trailing 12 month PE 19.33 18.78 19.13 18.85
Trail Earnings yield 5.17% 5.32% 5.23% 5.31%
Forward 12 month PE 17.93 17.37 17.76 17.46
Fwd Earnings Yield 5.58% 5.76% 5.63% 5.73%
90 day tbill yield 3.24 3.33 3.45 3.81
10 year tbond yield 3.69% 3.83% 3.89% 4.00%
Arezi Ratio 0.63 0.62 0.66 0.72
Fed Ratio 0.66 0.67 0.69 0.70
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 84%
stocks, 16% 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 54%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 78%.
Elan