The stock market was significantly higher on Monday morning, wiping out some of last week’s losses. Starting at 11 EDT today, the Dow Jones Industrial Average is S&P 500 they were both around 4.5% higher.
Payment stocks were going even better. Payment processing giants Visa (NYSE: V) is MasterCard (NYSE: MA) both increased by more than 7%, PayPal (NASDAQ: PYPL) increased by about 5.5% e American Express (NYSE: AXP) he was having a particularly strong day with an 11% gain.
The coronavirus epidemic and the consequent shutdown of many parts of the U.S. economy have been particularly tough for companies in the payment space.
In the case of Visa and Mastercard, both companies earn most of their revenue by collecting a small percentage of the volume of payments that flows through their huge networks. As consumer spending has declined since the start of the pandemic and will likely remain depressed for some time, it’s no wonder that these headlines have been hit hard. PayPal is in a similar situation, making the most of its money by facilitating payment transactions.
American Express not only earns by processing payments, but also acts as a lender. Known as a closed-loop payment network, American Express lends money directly to its customers by credit card. So in difficult times, Amex is not only hurt by a drop in the volume of payments, but also has exposure to consumer credit. If customers start having trouble paying their bills, this could result in serious losses for the company.
So why are these titles going so well today?
In short, we are starting to see the first positive coronavirus news in over a month. We have seen good news on the financial side of things, as in the $ 2 trillion stimulus package, but not when it comes to the virus itself. Specifically, during the weekend we saw clear signs of a slowdown in case increases and mortality rates in Italy and other affected areas in Europe. And the 594 coronavirus deaths reported by New York State on Sunday were the first daily drop we saw.
These developments seem to give investors hope that the COVID-19 pandemic may not keep the economy closed for the feared time, and therefore the recession may end up being short-lived. Payment volumes may soon return to normal levels and loan defaults may not be as serious as investors thought.
Having said that, it is important that investors realize that we are not yet out of the woods. Coronavirus hotspots around the world are still hotspots and people are still dying from COVID-19 both at home and abroad at alarming rates. And economically, it is very it is not clear at this point when daily life could begin to return to normal.
The bottom line is that we are starting to see some good news, which may indicate that we may be able to avoid keeping the economy closed over the summer. But there is still a long way to go in the battle against the terrible pandemic, so investors should expect a roller coaster ride in these (and other) stock prices for the foreseeable future.