Subject: Arezi Ratio for Feb 10
* 1/20 1/27 2/3 2/10/25
S&P 500 Index 5996.66 6101.24 6040.53 6025.99
Trailing 12 month PE 28.45 28.61 28.15 28.22
Trail Earnings yield 3.51% 3.50% 3.55% 3.54%
Forward 12 month PE 23.78 24.06 23.79 23.77
Fwd Earnings Yield 4.21% 4.16% 4.20% 4.21%
90 day tbill yield 4.34 4.35 4.31 4.35
10 year tbond yield 4.61% 4.63% 4.58% 4.49%
Arezi Ratio 1.23 1.24 1.21 1.23
Fed Ratio 1.10 1.11 1.09 1.07
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 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 49%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 83%.
Elan