Subject: Arezi Ratio for Feb 2
* 1/12 1/19 1/26 2/2/26
S&P 500 Index 6966.28 6940.01 6915.61 6939.03
Trailing 12 month PE 28.81 28.15 27.95 27.93
Trail Earnings yield 3.47% 3.55% 3.58% 3.58%
Forward 12 month PE 24.19 23.66 23.38 23.44
Fwd Earnings Yield 4.13% 4.23% 4.28% 4.27%
90 day tbill yield 3.62 3.67 3.70 3.67
10 year tbond yield 4.18% 4.24% 4.24% 4.26%
Arezi Ratio 1.04 1.03 1.03 1.02
Fed Ratio 1.01 1.00 0.99 1.00
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 69%
stocks, 31% cash this week.
Other timing indicators:
The S&P index is above its 200DMA. - Bullish
We are in the Nov-Apr part of the year. - Bullish
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 89%.
Elan