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Here's Why Capital One and Discover Shares Are Rising Today

By Matthew Frankel, CFP® - Apr 9, 2020 at 12:55PM

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The major credit card lenders are ending the week on a positive note.

What happened

The stock market is finishing a strong week with another rally on Thursday before heading into the long Easter weekend. As of noon EDT, the Dow Jones Industrial Average and the S&P 500 index were both higher by approximately 2%.

The financial sector was one of the markets' brightest spots, with the Financial Sector Select SPDR ETF (XLF 1.37%) up by more than 5%. Some of the major credit card lenders are doing even better. Capital One Financial (COF 2.52%) and Discover Financial Services (DFS 3.29%) had risen by more than 7% and 8%, respectively, as of midday.

Person holding a credit card while using a laptop.

Image source: Getty Images.

So what

There are a couple of big reasons for the move. For one thing, the Federal Reserve just announced a massive $2.3 trillion plan to provide liquidity to the markets and loans to small and medium-size companies. This is a great catalyst for the lending industry in general and provides much-needed relief for businesses all over the U.S. Remember that most credit card issuers, including these two, have substantial business credit card loans. Capital One in particular is a large issuer of business credit cards.

Another reason for the optimism is that the news regarding the fight against the COVID-19 pandemic continues to look promising. While we still have a long way to go, infection rates in some of the hot spots like New York City are starting to come down, and Treasury Secretary Steven Mnuchin said this morning that the U.S. economy could reopen in May, which is earlier than most people had been expecting. A shorter recession would likely prevent a massive wave of consumer defaults, which is certainly positive news for credit card issuers.

Now what

As mentioned, we're a long way from being back to normal. But we're finally starting to see light at the end of the tunnel, and the light seems to be much closer than just a week or two ago.

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Stocks Mentioned

Capital One Financial Corporation Stock Quote
Capital One Financial Corporation
COF
$106.82 (2.52%) $2.63
Discover Financial Services Stock Quote
Discover Financial Services
DFS
$97.69 (3.29%) $3.11
The Select Sector SPDR Trust - The Financial Select Sector SPDR Fund Stock Quote
The Select Sector SPDR Trust - The Financial Select Sector SPDR Fund
XLF
$31.88 (1.37%) $0.43

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

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