On the surface, bank earnings last week were not all that bad. JP Morgan, Goldman Sachs and Morgan Stanley posted great revenue numbers thanks to the money brought in through trading, but when you listen to commentary from the leaders at these companies, they do not paint a rosy picture.

"May and June will prove to be the easy bumps in terms of this recovery," Jennifer Piepszak, Chief Financial Officer at JP Morgan, said during the earnings call. "Now we're really hitting the moment of truth, I think, in the months ahead."

The CARES Act has put a Band-Aid over the economic crisis with expanded unemployment and a round of stimulus checks. People lost their jobs have still received sizable income because of the additional $600 the federal government tacked on to unemployment benefits.

The additional unemployment benefits expire by the end of the month. Congress could extend the initiative with the next stimulus bill, but they do not have a lot of time to come to an agreement on this legislation.

The importance of the beefed up benefits came up during multiple earnings calls with banks.

"In the normal recession, unemployment goes up, delinquencies go up, charge-offs go up, home prices go down," Jamie Dimon, Chairman and Chief Executive Officer at JP Morgan, said during the earnings call.

"Savings are up, incomes are up, home prices are up."

Executive at Bank of America also noted that they have not seen consumer spending drop off, as expected, during a typical recession.

"We are seeing nothing that is consistent with an 11% unemployment rate in the actual consumer payment behavior," Brian Moynihan, Chief Executive Officer at Bank of America, said.

Banks are not seeing people miss credit card bills or loan payments at what they had initially expected when the pandemic hit the U.S. The expanded unemployment benefits have allowed people who lost jobs to pay their bills.

If Congress does not pass another massive stimulus plan with boosted unemployment benefits, I would anticipate people have a tougher time covering some of their bills.

The other issue has to do with the virus itself. Unfortunately, COVID-19 cases are rising in the U.S. and this has caused a majority of states to either pause or roll back their reopening plans.

"With an increase in viruses and this uncertainty persisting, I think you'll see a flattening in that economic pickup, and that will slow the progress we make economically from here," David Michael Solomon, Chairman and Chief Executive Officer at Goldman Sachs, said during their earnings call.

"We continue to advise clients to be thoughtful and cautions about that." Another concerning takeaway from bank earnings came from Wells Fargo. The business reported its first loss since 2008, and executives said they want to cut $10 billion in costs. "We're going to reduce our expenses by a certain point in time because we are doing the work to figure out what the timing looks like with our reductions versus our investments," Charlie Scharf, Chief Executive Officer at Wells Fargo, said. When companies want to really slash expenses, they lay employees off, and if Wells Fargo cuts jobs, it makes it easier for other large businesses to do the same. As business leaders look ahead to 2021, how many of them are making plans to reduce staffing so they can find the "right size" for their companies? We could see a second wave of job losses later this year, and we probably will not have expanded unemployment benefits for the newly laid off to rely on.

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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