Subject: Arezi Ratio for Sep 4
* 8/14 8/21 8/28 9/4/23
S&P 500 Index 4464.05 4369.71 4405.71 4515.77
Trailing 12 month PE 24.17 23.64 23.65 24.34
Trail Earnings yield 4.14% 4.23% 4.23% 4.11%
Forward 12 month PE 21.16 20.60 20.68 21.00
Fwd Earnings Yield 4.73% 4.85% 4.84% 4.76%
90 day tbill yield 5.54 5.55 5.61 5.53
10 year tbond yield 4.16% 4.26% 4.25% 4.18%
Arezi Ratio 1.34 1.31 1.33 1.35
Fed Ratio 0.88 0.88 0.88 0.88
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 53%
stocks, 47% 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 23%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 70%.
Elan