Subject: Arezi Ratio for Oct 7
* 9/16 9/23 9/30 10/7/24
S&P 500 Index 5626.02 5702.55 5738.17 5751.01
Trailing 12 month PE 27.80 28.25 28.39 28.36
Trail Earnings yield 3.60% 3.54% 3.52% 3.53%
Forward 12 month PE 23.49 23.80 23.95 23.96
Fwd Earnings Yield 4.26% 4.20% 4.18% 4.17%
90 day tbill yield 4.97 4.75 4.68 4.73
10 year tbond yield 3.66% 3.73% 3.75% 3.98%
Arezi Ratio 1.38 1.34 1.33 1.34
Fed Ratio 0.86 0.89 0.90 0.95
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