Subject: Arezi Ratio for May 18
* 4/27 5/4 5/11 5/18/26
S&P 500 Index 7165.08 7230.12 7398.93 7408.50
Trailing 12 month PE 30.54 30.99 31.56 32.30
Trail Earnings yield 3.27% 3.23% 3.17% 3.10%
Forward 12 month PE 20.68 20.87 20.86 22.38
Fwd Earnings Yield 4.84% 4.79% 4.79% 4.47%
90 day tbill yield 3.69 3.68 3.69 3.69
10 year tbond yield 4.31% 4.39% 4.38% 4.59%
Arezi Ratio 1.13 1.14 1.16 1.19
Fed Ratio 0.89 0.92 0.91 1.03
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 60%
stocks, 40% cash this week.
Other timing indicators:
The S&P index is above its 200DMA. - Bullish
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 40%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 74%.
Elan