Why credit card company stocks are crashing

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What happened

“The markets are sending a message on the coronavirus: the risk of recession is real. ”

So read one of the main stories on The Washington Post this morning, and judging by the market reaction to the latest novel coronavirus news – the S&P 500 is down 6%, the Dow is down 6.4% – investors are taking this warning to heart. There is a very real risk of a looming recession, and recessions are not good for savings, for spending, or for credit card stocks.

Actions of MasterCard (NYSE: MA), Visa (NYSE: V), American Express (NYSE: AXP), To discover (NYSE: DFS), and Capital One Financial (NYSE: COF) – basically any stock that makes you think of “credit cards” when you hear its name – has fallen 8-10% this morning. As of 1 p.m. EDT, Mastercard remains down 4.8% and Visa a little less worrying 3.7%. American Express is down 7.8%, Discover is down 9.7%, and Capital One – traditionally the card that targets consumers with lower credit scores – is down 10%.

This is not good news.

Image source: Getty Images.

So what

Most of the downward movement can probably be attributed to concerns about the coronavirus, sure. But here’s a second aspect of selling that you might want to consider: Think about the last time you refueled your car. How did you pay for this gasoline?

Chances are, you used a credit card. And the more expensive the gas – the more the barrel of oil was – back then, the more money you charged to your card, the more profit your credit card company made on you.

Well, in case you haven’t heard, oil markets are collapsing today. Saudi Arabia has just launched a price war against its rival energy companies in Russia, by lowering the price of crude oil by $ 6 a barrel in Asia, $ 7 a barrel in the United States and $ 8 a barrel in Europe. Lower prices mean cheaper oil for the refiners who buy it, and cheaper gasoline for you.

Now what

The bad news if you own bank stocks and stocks of credit card companies: cheaper oil and the cheaper gasoline that comes with it almost certainly means less income and profits for you. credit card companies Consequently.

Combined with less spending in general from people cocooning at home and waiting for the coronavirus epidemic to ebb, less spending by workers excluded from their businesses due to quarantine or simply a drop in demand from consumers, less spending period – and that gives you the reason credit card company stocks are crashing today.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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