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Here's Why Shares of American Express, Discover, and Capital One Are Falling Monday

By Matthew Frankel, CFP® - Updated Apr 13, 2020 at 11:39AM

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Credit card companies are some of the worst performers to start the week.

What happened

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 (AXP 1.75%) and Discover (DFS 1.00%) were down by 6.6% and 7.4%, respectively, and credit-card focused bank Capital One (COF 0.41%) was lower by 6.1%.

Person holding several credit cards.

Image source: Getty Images.

So what

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.

Now what

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.

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
$165.84 (1.75%) $2.85
Capital One Financial Corporation Stock Quote
Capital One Financial Corporation
COF
$115.74 (0.41%) $0.47
Discover Financial Services Stock Quote
Discover Financial Services
DFS
$109.60 (1.00%) $1.09

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

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