Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Capital One, Discover, and Amex Were Rising Tuesday

By Matthew Frankel, CFP® – Apr 7, 2020 at 3:51PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stock market rally faded a bit, but these stocks stayed strong.

What happened

The stock market opened sharply higher on Tuesday, but the market cooled off quite a bit as the day went on. At 3:15 p.m. EDT, the Dow Jones Industrial Average and S&P 500 benchmark index were both higher by a bit more than 1%.

Credit card stocks were one of the bright spots of the market. Capital One (COF -1.61%) was higher by 8% in the afternoon, while Discover (DFS -0.55%) and American Express (AXP -2.09%) were both higher by 6%.

To be clear, the financial sector has been one of the hardest hit parts of the market in the coronavirus-related downturn, and all of these stocks are still a long way from their highs. Capital One's share price is less than half of what it was in late January, while Discover is still down by about 60% since that time. Amex is the best performer of the three, down just 36% from its January high.

Credit card inserted in a chip reader.

Image source: Getty Images.

So what

There are a couple reasons for the disproportionately strong performance of these stocks. All three have substantial portfolios of credit card loans, which can perform poorly during recessions. If the COVID-19 pandemic drags on through the summer or even into the fall, more and more Americans could find themselves unable to pay their bills. And credit card debt tends to be a lower priority for consumers to pay in tough times when compared with mortgages and auto loans.

We're finally starting to see some good news related to the battle against the coronavirus outbreak. New infection numbers seem to be peaking in some key U.S. hotspots, and in Italy and several other hard-hit European countries, there's increasing evidence that the outbreak is turning a corner.

What's more, the U.S. Treasury announced today it would seek to expand the $350 billion small business lending program that was announced as part of the CARES Act. The Senate also announced its intention to expand the program, planning to vote on an additional $250 billion on Thursday. Treasury Secretary Steven Mnuchin indicated that he had reached out to both parties in both the House of Representatives and the Senate, and sounded optimistic that such an increase would get done.

Many small businesses are customers of these credit card companies, so this could make it easier for them to survive the pandemic and remain in relatively good financial shape. Amex and Capital One have especially large small-business credit operations.

Now what

To be clear, we're a long way from this pandemic being over. Even under the most optimistic scenarios, the near-shutdown of the U.S. economy will last for at least another month or so, and longer is more likely. However, the recent news is the first sign of light at the end of the tunnel, and investors are happy to see it. Plus, the prospect of the expansion of the small-business lending program from $350 billion to $600 billion is good news for the credit card lenders with large small-business lending operations.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

American Express Company Stock Quote
American Express Company
$134.91 (-2.09%) $-2.88
Capital One Financial Corporation Stock Quote
Capital One Financial Corporation
$92.17 (-1.61%) $-1.51
Discover Financial Services Stock Quote
Discover Financial Services
$90.92 (-0.55%) $0.50

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.