Actions are gathering on the announcement of the $ 2 trillion stimulus package which is expected to be approved shortly by Congress. As of 15:00 EDT, the Dow Jones Industrial Average is S&P 500 the ratios were around 5% and 4% higher, respectively.
Many securities in the financial sector have performed even better, especially the major credit card names. Payment processing giants MasterCard (NYSE: MA) is Visa (NYSE: V) rose 10% and 7%, respectively, while credit card lenders American Express (NYSE: AXP) is Capital One (NYSE: COF) they were 9% and 6% higher with an hour at the end of the trading day.
Not surprisingly, the stimulus is a welcome relief for payment processors and credit card issuers. Some of the stimulus provisions include cash payments to most Americans, better unemployment insurance and hundreds of billions of dollars in aid to small businesses.
Payment processors like Visa and Mastercard make their money by taking a percentage of the volume of payments that flows through their networks. A lower payment volume means less revenue and the stimulus bill should help mitigate the drop in the volume of payments that should result from the COVID-19 pandemic.
Credit card lenders like Capital One are likely to see an increase in defaults as jobless consumers find it difficult to pay their bills. Well, the stimulus helps to give them more financial resources to stay updated, which is a great relief for lenders.
American Express is both a payment processor is a lender, so it benefits both ways.
How long the COVID-19 pandemic lasts and how deep the resulting recession could be anyone’s assumptions at this point. However, the stimulus will certainly help when it comes to the impact on the financial services sector.