Subject: Arezi Ratio for Dec 8
* 11/17 11/24 12/1 12/8/25
S&P 500 Index 6734.11 6602.99 6849.09 6870.40
Trailing 12 month PE 27.95 27.61 28.57 28.62
Trail Earnings yield 3.58% 3.62% 3.50% 3.49%
Forward 12 month PE 24.36 23.67 24.47 24.47
Fwd Earnings Yield 4.10% 4.23% 4.09% 4.09%
90 day tbill yield 3.95 3.90 3.88 3.71
10 year tbond yield 4.14% 4.06% 4.02% 4.14%
Arezi Ratio 1.10 1.08 1.11 1.06
Fed Ratio 1.01 0.96 0.98 1.01
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 67%
stocks, 33% 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 57%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 88%.
Elan