Subject: Arezi Ratio for Jan 1
* 12/11 12/18 12/25 1/1/24
S&P 500 Index 4604.37 4719.19 4754.63 4769.83
Trailing 12 month PE 24.02 24.56 24.65 24.61
Trail Earnings yield 4.16% 4.07% 4.06% 4.06%
Forward 12 month PE 21.07 21.60 21.69 21.68
Fwd Earnings Yield 4.75% 4.63% 4.61% 4.61%
90 day tbill yield 5.44 5.44 5.44 5.40
10 year tbond yield 4.23% 3.91% 3.90% 3.88%
Arezi Ratio 1.31 1.34 1.34 1.33
Fed Ratio 0.89 0.84 0.85 0.84
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 54%
stocks, 46% 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 inverted. - Bearish
A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 34%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 80%.
Elan