Subject: Arezi Ratio for Jul 31
* 7/10 7/17 7/24 7/31/23
S&P 500 Index 4398.95 4505.42 4536.34 4582.23
Trailing 12 month PE 24.39 25.17 25.17 25.44
Trail Earnings yield 4.10% 3.97% 3.97% 3.93%
Forward 12 month PE 20.87 21.70 21.68 21.84
Fwd Earnings Yield 4.79% 4.61% 4.61% 4.58%
90 day tbill yield 5.46 5.49 5.50 5.52
10 year tbond yield 4.06% 3.83% 3.84% 3.96%
Arezi Ratio 1.33 1.38 1.38 1.40
Fed Ratio 0.85 0.83 0.83 0.86
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 50%
stocks, 50% 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 20%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 68%.
Elan