Subject: Arezi Ratio for Mar 9
* 2/16 2/23 3/2 3/9/26
S&P 500 Index 6836.17 6909.51 6878.88 6740.02
Trailing 12 month PE 27.11 27.30 27.07 26.44
Trail Earnings yield 3.69% 3.66% 3.69% 3.78%
Forward 12 month PE 22.95 23.14 22.97 22.46
Fwd Earnings Yield 4.36% 4.32% 4.35% 4.45%
90 day tbill yield 3.68 3.69 3.67 3.69
10 year tbond yield 4.04% 4.08% 3.97% 4.15%
Arezi Ratio 1.00 1.01 0.99 0.98
Fed Ratio 0.93 0.94 0.91 0.93
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 71%
stocks, 29% 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 61%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 91%.
Elan