U.S. equities finished out a choppy week of trading slightly lower as investors grappled with moderating economic momentum amid the resurgence of social distancing restrictions to rein in the rise in coronavirus cases. Additionally, tit-for-tat consulate closures between the U.S. and China raised concerns of a flare-up in the strained relationship between the world’s largest economies. For the week, the S&P 500 and Dow Jones lost -0.3% and -0.8%, while the Nasdaq Composite fell -1.3% as investors rotated out of some of the stronger performing technology companies in favor of more cyclical stocks with less expensive valuations. The tech heavyweights that have driven much of the resilience of the U.S. stock market this year will be under heavy focus this week as several are on the docket to report second quarter earnings results. The five largest tech companies, Apple, Microsoft, Amazon, Alphabet, and Facebook, now collectively represent over 22% of the S&P 500 compared to just over 16% a year ago, and all but Microsoft are set to report earnings this week.

On the pandemic front, coronavirus cases in some of the recent U.S. hotspots, including Florida, Arizona, California, and Texas, have started to level off following implementation of stricter social distancing requirements. However, several of these states also saw notable upticks in unemployment claims. Initial unemployment claims ticked up to over 1.4 million last week from 1.3 million in the week prior after having fallen every week since late March’s peak of 6.9 million layoffs. The number of continuing jobless claims for state unemployment insurance did improve to 16.2 million (roughly 10% of the U.S. labor force) from 17.3 million in the week prior. However, including federal Pandemic Unemployment Assistance, which provides aid to those who don’t qualify for standard state unemployment insurance such as self-employed individuals and gig economy workers, the total number of people claiming unemployment benefits sat at 31.8 million as of last week, according to the Department of Labor.

With such a large amount of the population dependent on government aid to replace lost wages and the upcoming July 31st expiration of enhanced unemployment benefits added by the March CARES Act, the negotiations around the next round of fiscal stimulus have a high sense of urgency. Senate Republicans officially rolled out a roughly $1 trillion stimulus proposal on Monday night with plans to reduce the current $600 weekly unemployment supplement to $200 a week through September and then transition to replacing 70% of previous wages in combination with state benefits. That plan stands at a wide gap with House Democrats who passed a stimulus proposal in May totaling about $3.5 trillion, including continuing the $600 weekly unemployment supplement through the end of the year. Suffice to say, there is a large amount of ground to cover in coming to a compromise for the fifth coronavirus relief bill that must be covered expeditiously.

The week ahead is packed with notable market and economic updates and potentially market moving events. Aside from the tech giants, over a third of the S&P 500 is set to report second quarter earnings this week. Additionally, the Federal Reserve will have their monthly meeting to discuss the economic outlook and any further monetary policy measures, and the preliminary release of second quarter GDP results is due out on Thursday. The expectations for second quarter GDP are wide ranging, but none of them good with the consensus forecast for a -35% drop in economic growth from the first quarter. However, expectations for third quarter GDP growth continue to be revised upward after a strong initial rebound in economic activity following April’s lows.

To help you navigate the shifting market and economic landscape, First Merchants Private Wealth Advisors will be hosting a live, online event on Tuesday, August 4th from 10 to 10:45 am. You should have received a separate email invitation titled “Perspective from Private Wealth” with the call details, but please reach out to your advisor with any questions that you may have for joining the event.