Subject: Arezi Ratio for Jul 7
* 6/16 6/23 6/30 7/7/25
S&P 500 Index 5976.97 5967.84 6173.07 6279.35
Trailing 12 month PE 27.22 27.14 28.04 28.46
Trail Earnings yield 3.67% 3.68% 3.57% 3.51%
Forward 12 month PE 23.48 23.39 24.19 24.47
Fwd Earnings Yield 4.26% 4.28% 4.13% 4.09%
90 day tbill yield 4.45 4.39 4.39 4.42
10 year tbond yield 4.41% 4.38% 4.29% 4.35%
Arezi Ratio 1.21 1.19 1.23 1.26
Fed Ratio 1.04 1.02 1.04 1.06
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 57%
stocks, 43% 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 27%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 72%.
Elan