Arezi Ratio for Sep 12


*                         8/22     8/29     9/5      9/12/22
S&P 500 Index             4228.48  4057.66  3924.26  4067.36
Trailing 12 month PE      22.04    21.06    20.49    21.24
Trail Earnings yield      4.54%    4.75%    4.88%    4.71%
Forward 12 month PE       20.45    19.58    19.03    19.70
Fwd Earnings Yield        4.89%    5.11%    5.25%    5.08%
90 day tbill yield        2.74     2.89     2.94     3.08
10 year tbond yield       2.98%    3.04%    3.20%    3.33%
Arezi Ratio               0.60     0.61     0.60     0.65
Fed Ratio                 0.61     0.60     0.61     0.66

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

17 Likes

The ‘S=120-50*Arezi Ratio’ formula indicates an allocation of 87%
stocks, 13% cash this week.

I haven’t been paying too close attention, but when did the formula dip back below 100% stocks?

JLC

The ‘S=120-50*Arezi Ratio’ formula indicates an allocation of 87%
stocks, 13% cash this week.

I haven’t been paying too close attention, but when did the formula dip back below 100% stocks?

Beginning on July 18, 2022. It’s been trending down very gradually since the beginning of the year, when the 90 day tbill rate started trending up.

Elan

3 Likes