Subject: Arezi Ratio for Jan 19
* 12/29 1/5 1/12 1/19/26
S&P 500 Index 6929.94 6858.47 6966.28 6940.01
Trailing 12 month PE 28.78 28.46 28.81 28.15
Trail Earnings yield 3.47% 3.51% 3.47% 3.55%
Forward 12 month PE 24.32 23.91 24.19 23.66
Fwd Earnings Yield 4.11% 4.18% 4.13% 4.23%
90 day tbill yield 3.64 3.65 3.62 3.67
10 year tbond yield 4.14% 4.19% 4.18% 4.24%
Arezi Ratio 1.05 1.04 1.04 1.03
Fed Ratio 1.01 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