The S&P

Stalls in May

Typically, a flat market would not be something I’d write about, but given the amount of stimulus infused into our economy, the record earnings just reported, and the number of Americans who have received their vaccines, I would think investors would be buying into this news.

I think we’ve all been surprised to see how quickly the stock market rebounded from COVID-19, which forced the closure of almost every major economy in the world. It has been a little over a year since we were all forced to “shelter-in-place,” a term originally created during the cold war in case a nuclear war began. And in that time, we’ve seen a resilience in the market that mirrors the resilience in the American people. 

As we’ve hit spring, however, the markets have stalled. The S&P 500 has traded sideways for the past month (as seen in the chart below). Typically, a flat market would not be something I’d write about, but given the amount of stimulus infused into our economy, the record earnings just reported, and the number of Americans who have received their vaccines, I would think investors would be buying into this news.



Some economists and analysts treat the word stimulus as if it were a four-letter word. Stimulus, under the right circumstances is not a horrible thing. For example, I think that our government did the right thing by acting quickly and decisively in March 2020. The $2.2 trillion CARES Act provided relief to individuals, small business owners, and specific industries impacted most by COVID. There have been two subsequent stimulus packages that have passed, pouring an additional $2.8 trillion in funds to support our economy until businesses and local governments can stand without assistance. Over $5 trillion has already been allocated to prop up our economy, which unfortunately experienced the largest one quarter drop in its history. Stimulus at these levels should spark and continue to drive economic growth over the short-term.


As of May 21st, 95% of the companies in the S&P 500 had reported their earnings. According to FactSet, 86% of these companies reported a positive earnings-per-share (EPS) surprise and 76% of these companies reported a positive revenue surprise. The blended earnings growth rate is 51.9%. If these numbers hold, it would be the highest EPS surprise on record and the highest growth rate since Q1 2010. All in all, it has been an amazing earnings season for S&P 500 companies.

U.S. Vaccinations

In the United States, over 285 million doses of COVID-19 vaccines have been administered. Over 130 million Americans are fully vaccinated, with another 33 million that have had one dose. This means that 49.2% of all Americans (58.2% over the age of 12 years old) have had at least one dose of a vaccine. While these are excellent figures, when comparing ourselves to other countries, the United States is still a long way from our target goal of 80% immunization, where we find herd immunity.

The vaccines are working to suppress daily new cases in the United States, which have dropped to 25,000 per day. We haven’t seen levels these low in a year.

The massive vaccination administration program in the United States has also had a material impact on the number of people dying from COVID every day. With the drop in daily new cases, the number of daily deaths due to COVID have also decreased. We are down to approximately 500 people dying from COVID per day. These are levels that we haven’t seen since the pandemic began and spread into the United States.

One would think that the stock markets would be raging up having just reported record earnings, a government that is prodding as much economic growth as it can muster, and more than 50% of our adult population having received at least one vaccine shot. This should cheer up even the most grumpy investor.

Too Much Stimulus

There are some analysts and economists that believe that the U.S. government has provided too much stimulus. The $5 trillion that we have already spent to support our economy came from borrowed money. When our government borrows money, it devaluates the U.S. dollar proportionately. Thankfully, during COVID, many other countries have produced their own stimulus packages. As a result, most major currencies have devaluated at a similar pace. If the U.S. government continues to borrow money to support our
economy at a faster pace than Europe or Asia, we run the risk of devaluating the dollar and creating inflation, and/or if not effectively allocated, run the risk of stagflation.


As of April 30, 2021, the S&P 500 was trading at 21.92 times its forward 12-month price-to-earnings ratio. Over the past twenty-five years, the S&P 500 has traded at 16.68 times the projected next twelve months of earnings. This places the S&P 500 at valuation levels that haven’t been seen since the late 90s.

We have pointed out that the largest ten stocks of the S&P 500 represent almost 30%
of the index’s overall market capitalization. 

This means that as these ten companies go, so will the index. As seen in the chart to the right, these ten companies (Apple, Microsoft, Amazon, Google – Cl A, Google – Cl B, Tesla, Berkshire Hathaway – Cl B, JP Morgan, Johnson & Johnson, and Visa) are trading at 29.6 times their current price-to-earnings ratio. 

Historically, they’ve traded at 19.5 times their earnings, putting them 152% of normal.

Worldwide Vaccinations

According to the CDC, there have been an estimated 168 million people infected by COVID-19, resulting in the death of more than 3.5 million people. Remarkably, scientists have been able to create four vaccines that are more than 60% effective against COVID-19, with Pfizer and Moderna’s vaccines providing over 95% prevention of getting the virus. All four of the vaccines dramatically lower the probability of patients with COVID-19 of dying from their effects. The feat that we have in front of us is to immunize at least 80% of the world’s population before COVID-19 mutates into a new variant that is resistant to the vaccine. If completed, it will be the largest immunization ever attempted and will take herculean logistical steps to complete.

According to Our World in Data, 1.67 billion doses have been given, with 391 million fully vaccinated, 5.0% of the world’s population. As you can see from the graph below, North America leads the way geographically. We are a long way from creating herd immunity globally, which places each and every one of us at risk in the future.

There are some countries, like China and Australia, which are not providing vaccination data reliably to the World Health Organization and CDC. As a result, they are not accounted for on this map. As one can see, very few countries have made a dent in immunizing their population.

Our World in Data estimates that China has administered over 500 million doses of vaccine to combat COVID-19. There is no way to estimate if one dose was given to 500 million people or if 250 million people are fully immunized. At a maximum, 36% of the Chinese population has received at least one dose of a vaccine. Below are the other 19 largest countries by population and what percentage of their population have been vaccinated.

The rollout of vaccines is just beginning to have an impact on daily new cases of COVID-19. New cases have dropped to 592,000 per day, using a 7-day average. This is down from over 826,000 just a few weeks ago. This is a good start, but as you can see below, there is a long way to go before getting too excited.
The same can be said about the worldwide Daily Death Rate. More than 12,000 people are dying each day from COVID-19. This is better than the 14,400 people dying daily earlier this year, but far from acceptable.


Looking at the bigger picture, things could be a whole lot worse. The United States is coming out of a pandemic driven recession due to governments worldwide ordering their citizens to “shelter-in-place.” In many ways, it’s a miracle that we are in such a good place right now.

Scientists created a vaccine at record speed. The United States did a great job securing hundreds of millions of doses so that our population could be first in line to be immunized. But this doesn’t mean that we are out of the woods by any means. We need to see greater production and distribution of COVID-19 vaccination worldwide, or we risk this coronavirus mutating and becoming resistant to our vaccines.

This requires a worldwide herd immunity, which logistically seems near to impossible. Even as we sit by fully vaccinated, COVID-19 has created shortages of goods and materially impacted supply chains. Our economy won’t fully go back to normal until the global economy goes back to normal. Our stimulus packages have put a small dent in the value of the dollar, and it could get worse. 

Our government is trying to implement additional stimulus packages, some of which would call for higher corporate and individual taxes. This is a very dangerous game to play and one that is very hard to balance. If the government oversteps themselves, higher taxes could lead to a major slow down in our economy or lead to a recession. 

On the other side, further stimulus without a means to pay for it will certainly lead to inflation. And it seems that the Fed is going to sit back and watch for a while, again leading to fears of inflation. Our stimulus packages have led to record earnings and record highs in the S&P 500. It has also led to historically high valuations, making some investors fearful that the markets will correct and drop significantly in value.

Polaris Wealth’s Investment Stance

I am constantly reminding clients that Polaris Wealth doesn’t invest in the market… we buy individual companies that trade in the market. Polaris Wealth is very disciplined in how we invest. We don’t go out and chase the “hot” stock and hope that it continues to shoot for the moon. We buy great companies that we feel are undervalued to where they should be based upon their business model.

So even if the market is overvalued, our investments are undervalued or properly valued. Our investment team at Polaris Wealth is constantly looking for the best economic trends for us to invest in. This helps us identify the best companies in the best sectors or industries to invest in. As we’ve always discussed, Polaris Wealth is Tactical in how we invest. This means that Polaris Wealth will get defensive in all of our investment strategies if our research indicates that risk is increasing to unacceptable levels.

As always, I encourage you to work closely with your Polaris Wealth financial advisor. They can help you balance your need to grow your portfolio with your desire to protect your portfolio against losses.