Over the past month, the S&P 500 (SPY  ) has been range-bound between 3,000 and 3,200. Currently, the index is challenging the upper level of this range, so a breakout is possible. In contrast, emerging markets (EEM  ) broke out to new post-COVID highs over the past couple of weeks.

One potential obstacle is the uncertainty of the unemployment insurance program and/or stimulus checks. Currently, the unemployment extension is set to expire at the end of July.

There seem to be competing interests between Senate Republicans, who seem concerned about deficits and people being incentivized to not seek work, the White House, who wants to see a payroll tax holiday, and Democrats who want to extend unemployment insurance and renew the stimulus checks. Given the recovery in financial markets and the improving economic data, it's likely that each side will feel like they have more leverage. This could lead to an agreement not being immediately made which could result in the program expiring with no replacement. Most experts agree that this would have a devastating effect on the economy and many people in industries who have been negatively affected.

It's less certain about its impact on financial markets. Negative headlines haven't resulted in prices moving lower, as financial markets continue to operate like the stimulus will be extended. Ultimately, it's an election year, so it makes sense that something will be passed with each side getting something they want.

Emerging Markets Starting to Outperform

While the stock market has moved mostly sideways over the past month, emerging markets have been trending higher. This outperformance against U.S. stocks is a new development as the group has consistently lost ground to US stocks since 2018.

In part, this has been due to the strength in the U.S. dollar and weakness in manufacturing and commodities. Those industries make up a greater chunk of the economies of emerging markets. Not surprisingly, these areas have been surprisingly strong since the March-bottom.

Copper and copper stocks like Freeport-McMoran (FCX  ) have been making six-month highs. Iron ore and stocks like BHP (BLP  ) and Rio Tinto (RIO  ) are also demonstrating the same price action. Both of these are economically-sensitive industries and their price action is a good sign for global growth and the prospects of emerging markets.

Another strong spot has been the performance of the Chinese economy which has handled the coronavirus in a much more effective manner than Western countries through its severe lockdowns and test and trace programs. The Shanghai stock market made a new high in early-July. In the U.S., Chinese internet stocks have been one of the strongest parts of the market.