What happened
Stocks are rallying on the announcement of the $2 trillion stimulus package that's expected to be passed shortly by Congress. As of 3 p.m. EDT, the Dow Jones Industrial Average and S&P 500 indexes were higher by about 5% and 4%, respectively.
Many financial-sector stocks were doing even better -- especially the major credit card names. Payment processing giants Mastercard (MA -1.08%) and Visa (V -1.38%) rose by 10% and 7%, respectively, while credit card lenders American Express (AXP -1.21%) and Capital One (COF -2.22%) were higher by 9% and 6% with an hour to go in the trading day.
Image source: Getty Images.
So what
It's not surprising that the stimulus is a welcome relief to payment processors and credit card issuers. Some of the provisions of the stimulus include cash payments to most Americans, enhanced unemployment insurance, and hundreds of billions of dollars in small business relief.
Payment processors like Visa and Mastercard make their money by taking a percentage of the payment volume that flows through their networks. Lower payment volume means less revenue, and the stimulus bill should help mitigate the drop in payment volume that's expected to result from the COVID-19 pandemic.
Credit card lenders like Capital One are likely to see an uptick in defaults as consumers who are out of work have trouble paying their bills. Well, the stimulus helps give them more financial resources to stay current, which is a big relief to lenders.
American Express is both a payment processor and a lender, so it benefits in both ways.
Now what
How long the COVID-19 pandemic lasts and how deep the resulting recession could be are anyone's guess at this point. However, the stimulus certainly will help when it comes to the impact on the financial services industry.
