Subject: Arezi Ratio for Oct 23
* 10/2 10/9 10/16 10/23/23
S&P 500 Index 4288.05 4308.05 4327.78 4224.16
Trailing 12 month PE 22.91 22.90 22.81 21.93
Trail Earnings yield 4.36% 4.37% 4.38% 4.56%
Forward 12 month PE 19.70 19.81 19.36 18.96
Fwd Earnings Yield 5.08% 5.05% 5.16% 5.27%
90 day tbill yield 5.55 5.63 5.62 5.58
10 year tbond yield 4.59% 4.78% 4.63% 4.93%
Arezi Ratio 1.27 1.29 1.28 1.22
Fed Ratio 0.90 0.95 0.90 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 59%
stocks, 41% cash this week.
Other timing indicators:
The S&P index is below its 200DMA. - Bearish
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 19%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 63%.
Elan