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Here's Why Visa, Mastercard, and American Express Are Higher on Wednesday

By Matthew Frankel, CFP® – Apr 29, 2020 at 1:17PM

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The credit card giants are among the market's top performers.

What happened

The stock market was having a strong day on Wednesday, with gains fueled by promising preliminary results from Gilead Sciences' (GILD -1.43%) potential coronavirus treatment remdesivir. As of noon EDT, the Dow Jones Industrial Average and S&P 500 index were higher by 2.3% and 2.7%, respectively.

Credit card stocks were some of the market's best performers. Payment-processing giants Mastercard (MA -1.60%) and Visa (V -0.98%) were up by 6.6% and 5.4%, respectively and closed-loop payment company American Express (AXP -1.94%) had risen by 6.3%.

Hand holding three credit cards.

Image source: Getty Images.

So what

The moves in these credit card stocks can be attributed to two main catalysts -- the overall market positivity and Mastercard's earnings, which were announced before the opening bell this morning.

First, the Gilead news gives hope of a coronavirus treatment, which could help the economy reopen faster and stronger than previously expected. This could result in a boost in consumer spending, which is obviously good for companies that make money by processing payments (and loaning money, in Amex's case).

Second, and more importantly, Mastercard earnings contained some encouraging figures. The company beat earnings and revenue estimates, but that wasn't the big story. 

Instead, Mastercard reported things like a 40% jump in contactless payments during the first quarter as consumers became more conscious of the risks involved with touching cash or payment terminals. Keep in mind that this sharp increase included the entire first quarter, where January and February were largely normal months in the U.S. CEO Ajay Banga expects this trend to continue beyond the pandemic. This creates an opportunity for all three of these fintech companies to benefit as even more payments move to contactless options, and as merchants upgrade their payment infrastructure.

Also, Banga said that consumer spending "was currently in the stabilization phase in most markets," which investors took as a very hopeful comment. Transaction volume and cross-border payments volume both increased during the week of April 21 from the prior week, according to information released by the company. Investors have been looking for clear signs that the worst of the pandemic's economic effects might be behind us, and it appears they got the reassurance they were looking for this quarter.

Now what

To be perfectly clear, we're a long way from consumer spending activity rebounding to anything close to pre-pandemic levels. While remdesivir certainly seems like a promising treatment, there's a lot that needs to be done before it will be ready for large-scale use. And the economy is still mainly closed throughout the U.S., with major questions remaining about how willing consumers will be to go out and spend money, even when restrictions are lifted.

Having said that, the increasing desire for contactless payment methods does create a nice opportunity for payment processors. And this is some of the first concrete data we've seen that indicates consumer spending may have already bottomed out. All three of these stocks are still well off their highs, but it's understandable why they're getting such a boost today.

Matthew Frankel, CFP owns shares of American Express. The Motley Fool owns shares of and recommends Gilead Sciences, Mastercard, and Visa. The Motley Fool has a disclosure policy.

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Stocks Mentioned

American Express Company Stock Quote
American Express Company
$140.26 (-1.94%) $-2.77
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$293.58 (-1.60%) $-4.78
Visa Inc. Stock Quote
Visa Inc.
$183.96 (-0.98%) $-1.83
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$62.86 (-1.43%) $0.91

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

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