The markets had a choppy week, but they had a nice rally on Friday and finished the week in the green. The Nasdaq continues to lead the way, growing by about 4% over the last five trading days.
When we dig deeper, we can see investors are growing more concerned about the rising number of COVID-19 cases. Tech and stay-at-home stocks are outperforming while hotels, airlines, restaurants, financials, and industrial names have lagged.
While bank stocks like JP Morgan had a terrific Friday, when we expand the chart out we can see it has struggled to gain traction.
When we pull up technology names, like Adobe, we see notable out performance.
We are starting to get an answer on one of our big July questions, but it will not be until late in the month when we have a resolution on the second question.
1. Will consumer spending slow down because of the rising number of COVID-19 cases?
The data shows that consumer spending hasn’t entirely slowed down, but it has stalled.
We were seeing an increase in the number of people going out to eat that lasted until late June. The data has now shown a slight decrease from the highs in mid-June, but there still seems to be a group of people that continue to dine-in restaurants.
We expected places like Arizona, Texas, and Florida to see a large drop in consumer activity because COVID-19 cases have been rising in those areas. However, the big dip has not come.
The number of people getting on planes and the frequency of people filling up their tanks in their cars has also flattened.
JP Morgan tracks spending on their credit and debit cards and once again we see the same picture emerge. The recovery in consumer spending has stalled.
We see the stalling in consumer activity as a big problem for many parts of the economy.
We know airlines, restaurants, and hotels are losing money, and we are seeing retailers enter into bankruptcy at an alarming rate.
2. What is Congress going to do to support the economy as expanded unemployment benefits are set to expire at the end of July?
Investors are trying to figure out what Congress is going to come up with in the next stimulus bill.
We know Republicans and Democrats want to put together another piece of legislation, but what it will look like is still up in the air.
Democrats have already laid out their proposals with the Heroes Act. It was an aggressive bill with a lot of spending, including large payouts to families and expanding the boosted unemployment benefits.
The attention has turned to what Republicans want to do. Senate Majority Leader Mitch McConnell has already declared the Heroes Act dead on arrival.
The GOP laid out support for another one-time check to individuals who make less than $40,000. They have voiced opposition to expanding the increased unemployment benefits, but people who follow Congress believe there will be some sort of extension.
Congress is slated to get back to work on July 20th. They will have to start coming up real ideas and putting pen to paper quickly. The expanded unemployment benefits will stop at the end of the month.
China-US Relations
The relationship between the United States and China is… bad. The US put sanctions on specific Chinese officials, arguing these individuals played a big role in China’s aggressive move into Hong Kong.
China has vowed to retaliate against the United States and will most likely put sanctions on certain American leaders.
President Trump was recently asked about a “Phase Two” trade deal with China, and the president responded by saying there’s no hope for that at the moment.
As of now, “Phase One” of the trade deal between the two countries is intact. Investors believe the White House will avoid economic sanctions against China until after the election, but if the relationship continues to deteriorate, investors could be caught off guard.
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