What happened

Shares of Mastercard (NYSE:MA), Visa (NYSE:V), Discover Financial (NYSE:DFS), and Capital One (NYSE:COF) all rose more than 5% on Tuesday, as hopes for tax cuts fueled investor optimism.

So what

The Dow Jones Industrial Average (DJINDICES:^DJI) gained more than 1,100 points after news broke that President Trump pitched a 0% payroll tax rate to Republican lawmakers, which could potentially go into effect for the rest of 2020. 

A tax cut of that magnitude would be likely to spur consumer spending, helping to offset the expected fallout from the COVID-19 coronavirus epidemic. Much of that spending would probably take place on debit and credit cards, such as those from Visa, Mastercard, Discover, and Capital One.

A person pointing to an upwardly sloping digital chart.

Credit card stocks rebounded on Tuesday. Image source: Getty Images.

Now what

Anything that boosts consumer optimism and spending is likely to be a boon for credit card companies. Many of these stocks have seen their prices fall sharply in recent days, as investors have grown more concerned regarding the potential for the COVID-19 outbreak to lead to a sharp downturn in the global economy. Should tax cuts help to ward off a recession in the U.S., the digital payment companies will no doubt benefit.

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