Subject: Arezi Ratio for Jun 2
* 5/12 5/19 5/26 6/2/25
S&P 500 Index 5659.91 5958.38 5802.82 5911.69
Trailing 12 month PE 25.73 27.05 26.31 26.77
Trail Earnings yield 3.89% 3.70% 3.80% 3.74%
Forward 12 month PE 22.58 23.70 23.01 23.37
Fwd Earnings Yield 4.43% 4.22% 4.35% 4.28%
90 day tbill yield 4.34 4.37 4.36 4.36
10 year tbond yield 4.37% 4.43% 4.51% 4.41%
Arezi Ratio 1.12 1.18 1.15 1.17
Fed Ratio 0.99 1.05 1.04 1.03
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 62%
stocks, 38% 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 normal. - Bullish
A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 42%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 75%.
Elan