What happened
Even after the Federal Reserve announced that it would expand its $700 billion quantitative easing plan to an unlimited amount, the stock market generally stayed in the red on Monday morning. As of 10:40 a.m. EDT, both the Dow Jones Industrial Average and the S&P 500 were down by almost 2%. While a combination of coronavirus-related news items are fueling the decline, the main reason is the delay of the fiscal stimulus bill that was widely expected to be finalized over the weekend.
Visa (V 0.51%) is getting hit especially hard, with shares down by more than 7%, reaching a fresh 52-week low. Since the beginning of February, the payment processing giant that has been a big beneficiary of the so-called war on cash has lost more than 30% of its market value.
Image source: Getty Images.
So what
In a nutshell, recession fears are the main culprit here.
Consider how Visa makes most of its money. When a payment transaction is made using a debit or credit card that bears the Visa logo, Visa facilitates the movement of money between the customer's bank and the merchant's account, collecting a small fee for its service.
Well, in a recession, consumers are generally less willing or less able to spend money (especially if unemployment spikes higher). This leads to lower payment volume and less fee revenue for Visa.
Also don't forget that a significant percentage of merchants are closed for the time being, so Visa is getting no revenue from this portion of its network.
Now what
At this point there's no way to know how deep the U.S. recession will be or how long it will last, and it is this ongoing uncertainty that is giving investors fear. If the federal government is successful in passing a fiscal stimulus bill, especially one that puts significant money in consumers' hands, it could help calm investors down, but as of Monday morning negotiations are still ongoing.
