The stock market was down Monday to follow its best weekly percentage gain since the 1970s. As of 11 a.m. EDT today, the Dow Jones Industrial Average and S&P 500 were lower by 2.5% and 2.3%, respectively.
Stocks of companies with large credit card lending operations were among the worst performers. Credit card lenders/payment processors American Express (NYSE:AXP) and Discover (NYSE:DFS) were down by 6.6% and 7.4%, respectively, and credit-card focused bank Capital One (NYSE:COF) was lower by 6.1%.
This has been a common theme of the coronavirus stock market downturn. When the market is higher, these stocks tend to outperform. And when the market is lower, the credit card stocks tend to get hit especially hard.
The reason is that credit card loans are a very recession-sensitive type of debt. As consumers start to have trouble paying their bills, credit card loan defaults tend to increase more than those on, say, mortgages and auto loans. Plus, as an unsecured type of debt, lenders can't repossess anything to recoup their money. Coronavirus-related economic fears seem to be high to start the week, and that's being reflected in these stocks.
In addition, the efforts to expand the emergency small-business lending program, or the Paycheck Protection Act, have stalled. Congressional Republicans want to add $250 billion in funding, while Democrats want to add aid for state governments and other purposes. All three of these companies have substantial business lending operations, so this could be adding fuel to the fire.
Until we get some serious clarity on how long it will be before the U.S. economy can reopen, and how deep the recession will be, expect these stocks (and most others) to be rather volatile as they react to each and every change in the pandemic-related news.