Arezi Ratio for Oct 3

*                         9/12     9/19     9/26     10/3/22
S&P 500 Index             4067.36  3873.33  3693.23  3585.62
Trailing 12 month PE      21.24    20.24    19.33    18.78
Trail Earnings yield      4.71%    4.94%    5.17%    5.32%
Forward 12 month PE       19.70    18.76    17.93    18.78
Fwd Earnings Yield        5.08%    5.33%    5.58%    5.76%
90 day tbill yield        3.08     3.20     3.24     3.33
10 year tbond yield       3.33%    3.45%    3.69%    3.83%
Arezi Ratio               0.65     0.65     0.63     0.62
Fed Ratio                 0.66     0.65     0.66     0.67

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 89%
stocks, 11% 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 59%.

An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 81%.

Elan

15 Likes

I am sitting here thinking about the time & effort that was put into making the numbers and units stand out nicely, and the table neatly lined up.

Bravo, sir.

2 Likes

Have any of these ever been back-tested against the SP500? The composite allocation would be of interest to me.