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Here's Why American Express and Other Credit Card Stocks Are Rising on Monday

By Matthew Frankel, CFP® - May 18, 2020 at 4:00PM

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Positive coronavirus news is making investors optimistic about the future.

What happened

The stock market was rising sharply on Monday as investors cheered a positive development in the fight against COVID-19. As of 2:50 p.m. EDT, the Dow Jones Industrial Average and S&P 500 benchmark index were up by 3.9% and 3.3%, respectively.

Some parts of the stock market were doing even better. The financial sector was one of the biggest outperformers on Monday -- especially credit card stocks. American Express (AXP -0.03%) was higher by 8%, credit card-focused bank Capital One (COF 1.58%) was up by 9%, and Discover (DFS 1.51%) was up by 7%.

Couple shopping online with a credit card.

Image source: Getty Images.

So what

The main reason for the sharp upward move in the stock market is news that Moderna's (MRNA -4.99%) COVID-19 vaccine is showing promising results in its early-stage clinical trials. The short version is that the trial involved 45 people who were each given one of three different-size doses on the potential vaccine. And all 45 developed antibodies to the virus.

To be sure, this is a very small sample size, and there are a lot of data that still need to be gathered before Moderna can make an assessment on how effective the vaccine could be when it comes to actually preventing the virus. For example, data on so-called neutralizing antibodies (the kind that prevent infection) are only available in eight of the 45 patients so far. Even so, this is certainly positive news.

You might be wondering what this has to do with these credit card companies, and the answer is "more than you might think."

In order to get back to pre-pandemic business conditions, credit card issuers need two basic things to happen. First, they need the economy to reopen and unemployment levels to start normalizing, so people don't run into trouble paying their bills. The primary reason credit card companies have been so beaten down recently is because of the possibility of elevated loan defaults. The sooner the economy gets back to normal, the better.

Second, and more obviously, credit card issuers rely on the ability and willingness of consumers to spend money. With so much economic uncertainty (and many retailers closed), it's not a surprise that consumer spending is much lower than it was last year at this time.

Now what

Here's the point: Economic stimulus is certainly helpful, but for our economy to really get back to normal, we're going to need a vaccine. Period.

To be sure, today's news is far from being conclusive data. And even in a best-case scenario, a vaccine wouldn't likely be available on any wide scale before the end of the year. But this is certainly giving investors hope that a vaccine is on the way, and we'll be able to get back to business as usual before too long.

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
$165.35 (-0.03%) $0.05
Capital One Financial Corporation Stock Quote
Capital One Financial Corporation
COF
$115.46 (1.58%) $1.80
Discover Financial Services Stock Quote
Discover Financial Services
DFS
$110.47 (1.51%) $1.64
Moderna, Inc. Stock Quote
Moderna, Inc.
MRNA
$167.96 (-4.99%) $-8.82

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

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