What happened
The stock market is having a historic rally in response to the expected swift approval of the $2 trillion stimulus package. As of 2:30 p.m. EDT on Wednesday, the Dow Jones Industrial Average and S&P 500 were up by about 5% and 3%, respectively. Over the past two days, the Dow is up by nearly 17%.
Discover Financial Services (DFS +0.00%), better known to consumers simply as Discover, has done even better. Its share price has risen by more than 14% today, and it has produced a staggering 44% rally over the past two trading days.
Image source: Getty Images.
So what
There are a couple of reasons the stimulus could be especially good news for Discover.
First, Discover is not just a payment processor, but a lender as well, and a massive spike in unemployment and furloughed workers could lead to a big rise in loan defaults. Without income, people have trouble paying their bills. The stimulus gives Americans much-needed cash, as well as enhanced unemployment coverage, so this is now less of a worry for Discover.
In addition, without cash flow, consumer confidence (and spending) would take a big hit. While we're almost certain to see a drop in spending, the provisions in the stimulus bill should help mitigate this effect.
Now what
It remains to be seen just how long the COVID-19 pandemic will last, and just how deep a U.S. recession will be. But it's fair to assume that the stimulus package will help cushion the blow for financial services companies like Discover, and that's why we're seeing such a sharp rally on the news.
