Subject: Arezi Ratio for Oct 30
* 10/9 10/16 10/23 10/30/23
S&P 500 Index 4308.05 4327.78 4224.16 4117.37
Trailing 12 month PE 22.90 22.81 21.93 21.36
Trail Earnings yield 4.37% 4.38% 4.56% 4.68%
Forward 12 month PE 19.81 19.36 18.96 18.59
Fwd Earnings Yield 5.05% 5.16% 5.27% 5.38%
90 day tbill yield 5.63 5.62 5.58 5.59
10 year tbond yield 4.78% 4.63% 4.93% 4.84%
Arezi Ratio 1.29 1.28 1.22 1.19
Fed Ratio 0.95 0.90 0.93 0.90
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 60%
stocks, 40% cash this week.
Other timing indicators:
The S&P index is below its 200DMA. - Bearish
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 63%.
Elan