Credit Card Stocks Lead the Day on the Dow

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) was up 0.59% in late trading as the Federal Reserve began its two-day policy meeting. The expectation is that the central bank tomorrow will announce another $10 billion monthly reduction, to $65 billion, to its monthly bond-buying program. Investors will be keying on what departing Fed Chairman Ben Bernanke has to say at his press conference tomorrow.

In economic news, data released today was pretty mixed. Durable goods orders dropped 4.3% in December and the S&P/Case-Shiller Home Price Index of 20 leading cities fell 0.1% in November, but the Conference Board's Consumer Confidence index jumped from 77.5 in December to 80.7 this month. It's that final figure that has investors in credit card companies jumping for joy today.

More confidence means more spending
American Express (NYSE: AXP  ) , Visa (NYSE: V  ) , and MasterCard (NYSE: MA  ) are up 1.2%, 2.2%, and 3.9%, respectively, on hope that higher consumer confidence will lead to higher spending in 2014. We already know that American Express saw billed business jump 7.9% in the fourth quarter, and this week we'll find out if Visa and MasterCard are experiencing the same development.

Visa reports earnings on Thursday; analysts are expecting $3.13 billion in revenue and earnings of $2.16 per share. MasterCard reports on Friday; revenue is expected to be $2.14 billion with earnings of $0.60 per share. Both companies have met or beaten estimates each quarter for the past year, so even meeting those numbers might now be enough to push the stocks higher.  

Another reason I think Visa and MasterCard will deliver outstanding numbers is the move to online sales. Brick-and-mortar stores had a tough holiday season, partly because online retailers took market share. Online sales are primarily done with credit cards, so both companies can grow faster than overall consumer spending, just like American Express did.

Keep an eye on earnings
The market has been crazy lately, reacting to data that wouldn't normally move stocks. But keep a focus on earnings because that's what will drive stock performance in the long term. American Express, Visa, and MasterCard are well positioned to take advantage of consumer spending trends, and consumer confidence just reinforced that thesis today.

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