* 8/15 8/22 8/29 9/5/22
S&P 500 Index 4280.15 4228.48 4057.66 3924.26
Trailing 12 month PE 22.31 22.04 21.06 20.49
Trail Earnings yield 4.48% 4.54% 4.75% 4.88%
Forward 12 month PE 20.74 20.45 19.58 19.03
Fwd Earnings Yield 4.82% 4.89% 5.11% 5.25%
90 day tbill yield 2.63 2.74 2.89 2.94
10 year tbond yield 2.84% 2.98% 3.04% 3.20%
Arezi Ratio 0.59 0.60 0.61 0.60
Fed Ratio 0.59 0.61 0.60 0.61
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 90%
stocks, 10% 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 60%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 82%.
Elan