What happened
Shares of Mastercard (MA 1.11%), Visa (V 0.94%), and American Express (AXP +1.89%) all rose more than 13% on Tuesday, as news of an impending stimulus deal sparked a major rally in the U.S. financial markets.
So what
Mastercard actually cut its guidance on Tuesday. The digital payments titan now expects revenue growth "in the low single-digits range," down from its previous forecast of high single-digit growth. Mastercard is reducing operating expenses to help mitigate the damage, but it suspended its full-year guidance due to uncertainty surrounding the COVID-19 coronavirus pandemic.
"The long-term fundamentals of our business remain strong," the company said in a press release. "However, due to the speed with which the COVID-19 situation is developing and the unknown duration and severity of the event, we are suspending our annual 2020 outlook for both net revenue and operating expense growth at this time."
Many investors were expecting Mastercard's results to come in below guidance due to the pandemic, and some may have been pleased that the credit card giant didn't reduce its revenue forecast even more.
In turn, credit card stocks rallied as investors focused more on news that lawmakers were nearing an agreement that would launch a series of stimulus measures designed to jump-start the economy.
Image source: Getty Images.
Now what
One of the most notable aspects of the stimulus deal is cash payments to U.S. citizens. Putting money in people's pockets will no doubt boost consumer spending. With many people stuck at home, much of this spending will take place online. And that means more credit and debit card processing fees for Visa, Mastercard, and American Express.
Moreover, if the stimulus plan helps to avert a severe recession -- or even a depression, as some economists have forecasted -- digital payment stocks could continue to rally in the months ahead. Many stocks have sold off violently in recent weeks due to the pandemic, and the shares of Visa and Mastercard now look like particularly compelling bargains.
If the economic damage from COVID-19 proves less than feared, investors who buy shares in these digital payment leaders now will likely be well rewarded.
