* 8/29 9/5 9/12 9/19/22
S&P 500 Index 4057.66 3924.26 4067.36 3873.33
Trailing 12 month PE 21.06 20.49 21.24 20.24
Trail Earnings yield 4.75% 4.88% 4.71% 4.94%
Forward 12 month PE 19.58 19.03 19.70 18.76
Fwd Earnings Yield 5.11% 5.25% 5.08% 5.33%
90 day tbill yield 2.89 2.94 3.08 3.20
10 year tbond yield 3.04% 3.20% 3.33% 3.45%
Arezi Ratio 0.61 0.60 0.65 0.65
Fed Ratio 0.60 0.61 0.66 0.65
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 88%
stocks, 12% 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 58%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 81%.
Elan