Subject: Arezi Ratio for Jan 5
* 12/15 12/22 12/29 1/5/26
S&P 500 Index 6827.41 6834.50 6929.94 6858.47
Trailing 12 month PE 28.38 28.45 28.78 28.46
Trail Earnings yield 3.52% 3.51% 3.47% 3.51%
Forward 12 month PE 24.24 24.07 24.32 23.91
Fwd Earnings Yield 4.12% 4.16% 4.11% 4.18%
90 day tbill yield 3.63 3.62 3.64 3.65
10 year tbond yield 4.19% 4.16% 4.14% 4.19%
Arezi Ratio 1.06 1.03 1.05 1.04
Fed Ratio 1.02 1.00 1.01 1.00
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 68%
stocks, 32% 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 normal. - Bullish
A composite allocation may start with the Arezi formula and subtract 10%
for each bearish indicator. The current target allocation is 58%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 89%.
Elan