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Here's Why Capital One, Amex, and Discover Were Falling on Friday

By Matthew Frankel, CFP® – Apr 3, 2020 at 4:53PM

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The credit card stocks continue to take a beating in the coronavirus downturn.

What happened

The stock market was having a negative day on Friday, with the Dow Jones Industrial Average down 1.7% at the close and the S&P 500 off 1.5%.

One part of the market that was getting hit especially hard was the credit card industry. Capital One (COF -0.01%) and American Express (AXP 0.06%) were both down nearly 4%, while Discover Financial Services (DFS -0.72%) was down almost 8%. And all had been rather volatile throughout the trading day.

2 Young women paying for purchase with credit card.

Image source: Getty Images.

So what

These stocks underperforming the market has become a common occurrence on days when the stock market is in the red and coronavirus fears are elevated.

The reason is that all three are vulnerable to recessions. Specifically, during tough times, demand for consumer lending (like credit cards) declines, and as people have trouble paying their bills, defaults and delinquencies can climb higher. This hurts both payment processing revenue and companies with large loan portfolios (like all three of these have). Since there's no way of knowing how long the COVID-19 pandemic will last or how deep the recession will be, markets are on edge when it comes to these stocks.

Now what

Discover seems to be getting hit the hardest for a couple of reasons. First, credit cards and other forms of consumer lending are its main business, unlike Capital One, which is a full-service consumer bank. And Discover's loan quality is relatively low compared with American Express, which has a generally affluent customer base.

Matthew Frankel, CFP owns shares of American Express. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

American Express Company Stock Quote
American Express Company
AXP
$137.53 (0.06%) $0.08
Capital One Financial Corporation Stock Quote
Capital One Financial Corporation
COF
$91.29 (-0.01%) $0.01
Discover Financial Services Stock Quote
Discover Financial Services
DFS
$90.39 (-0.72%) $0.66

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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