Subject: Arezi Ratio for Jan 27
* 1/6 1/13 1/20 1/27/25
S&P 500 Index 5942.47 5827.04 5996.66 6101.24
Trailing 12 month PE 28.40 27.72 28.45 28.61
Trail Earnings yield 3.52% 3.61% 3.51% 3.50%
Forward 12 month PE 23.78 23.17 23.78 24.06
Fwd Earnings Yield 4.20% 4.32% 4.21% 4.16%
90 day tbill yield 4.34 4.36 4.34 4.35
10 year tbond yield 4.60% 4.77% 4.61% 4.63%
Arezi Ratio 1.23 1.21 1.23 1.24
Fed Ratio 1.09 1.11 1.10 1.11
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 58%
stocks, 42% 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 48%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 83%.
Elan