* 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