Subject: Arezi Ratio for Jun 29
* 6/8 6/15 6/22 6/29/26
S&P 500 Index 7383.74 7431.46 7500.58 7354.02
Trailing 12 month PE 32.69 32.90 33.21 32.24
Trail Earnings yield 3.06% 3.04% 3.01% 3.10%
Forward 12 month PE 22.21 22.35 22.56 22.17
Fwd Earnings Yield 4.50% 4.47% 4.43% 4.72%
90 day tbill yield 3.78 3.78 3.83 3.83
10 year tbond yield 4.55% 4.48% 4.46% 4.38%
Arezi Ratio 1.24 1.24 1.27 1.23
Fed Ratio 1.01 1.00 1.01 0.93
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 58%
stocks, 42% 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 38%.
An alternative allocation, using S=120-30*Arezi Ratio and the first
two of the other timing indicators, produces a target of 73%.
Elan