Subject: Arezi Ratio for Jun 12
* 5/22 5/29 6/5 6/12/23
S&P 500 Index 4191.98 4205.45 4282.37 4298.86
Trailing 12 month PE 23.35 23.46 23.92 24.01
Trail Earnings yield 4.28% 4.26% 4.18% 4.16%
Forward 12 month PE 19.93 20.07 20.30 20.38
Fwd Earnings Yield 5.02% 4.98% 4.93% 4.91%
90 day tbill yield 5.29 5.34 5.50 5.37
10 year tbond yield 3.70% 3.80% 3.69% 3.75%
Arezi Ratio 1.23 1.25 1.32 1.29
Fed Ratio 0.74 0.76 0.75 0.76
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 56%
stocks, 44% 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 26%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 71%.
Elan