Subject: Arezi Ratio for Jul 3
* 6/12 6/19 6/26 7/3/23
S&P 500 Index 4298.86 4409.59 4348.33 4450.38
Trailing 12 month PE 24.01 24.58 24.20 24.72
Trail Earnings yield 4.16% 4.07% 4.13% 4.05%
Forward 12 month PE 20.38 20.88 20.60 21.03
Fwd Earnings Yield 4.91% 4.79% 4.85% 4.76%
90 day tbill yield 5.37 5.34 5.41 5.43
10 year tbond yield 3.75% 3.77% 3.74% 3.81%
Arezi Ratio 1.29 1.31 1.31 1.34
Fed Ratio 0.76 0.79 0.77 0.80
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 53%
stocks, 47% 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 inverted. - Bearish
A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 23%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 70%.
Elan