The S&P 500 appeared poised for its fourth straight week of gains, but lost steam over Thursday and Friday as concerns around expiring unemployment benefits, the momentum of the recovery, and escalating tensions with China, weighed on investor sentiment and pushed the index down by about 0.3% on the week. Despite the S&P 500 closing negative for the week, it was interesting to see the rotation from growth stocks to value stocks that occurred last week continue, as the Russell 1000 Value index actually rose about 1% this week while the Russell 1000 Growth index fell 0.2%.
Implications Surrounding a Potential 5th Coronavirus Relief Bill
As July winds down, we suspect the “fiscal cliff”, as some have dubbed it, will dominate financial media airwaves as the $600-per-week of additional unemployment benefits that were included in the CARES Act are scheduled to expire next Friday. Retail sales for both May and June significantly surpassed expectations, but the potential end of enhanced unemployment benefits will likely be a meaningful headwind for discretionary spending to continue to rebound.
For example, a recent study by JPMorgan Chase Institute found that Americans who received enhanced unemployment benefits due to the coronavirus pandemic spent 10% more than they did while they were working. This is a significant departure from a typical recession where households receiving jobless benefits would normally reduce spending by 7.5%.
Therefore, with the GOP not expected to release a proposal for a fifth coronavirus relief bill until early next week, it is very unlikely that a deal gets passed before the end of July and the market appears to be trying to digest the implications. Ultimately, we expect another deal will be reached, but volatility could increase as headlines around the next stimulus bill are likely to factor more heavily into investor sentiment.
Ian Browning, CFA | Director, Investment Strategies & Shareholder
Peter E. Simmons, JD | President & CEO