Subject: Arezi Ratio for Aug 19
* 7/29 8/5 8/12 8/19/24
S&P 500 Index 5459.10 5346.56 5344.16 5554.25
Trailing 12 month PE 27.59 27.03 26.13 27.38
Trail Earnings yield 3.61% 3.70% 3.83% 3.65%
Forward 12 month PE 23.04 22.55 22.60 23.42
Fwd Earnings Yield 4.34% 4.43% 4.42% 4.27%
90 day tbill yield 5.38 5.29 5.33 5.33
10 year tbond yield 4.20% 3.80% 3.94% 3.89%
Arezi Ratio 1.49 1.43 1.39 1.46
Fed Ratio 0.97 0.86 0.89 0.91
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 47%
stocks, 53% 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 17%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 66%.
Elan