Please ensure Javascript is enabled for purposes of website accessibility

Why Mastercard Stock May Be Falling Friday

By Rich Smith – Sep 4, 2020 at 2:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Mastercard does best when flush shoppers spend heavily.

What happened

For the second day in a row, shares of Mastercard (MA -1.25%) are following the stock market lower. After losing nearly 5% in Thursday's tech stock rout, Mastercard dropped another 5% in early trading Friday.

It's since recovered a bit -- and is down only 2.7% as of 1 p.m. EDT -- but is there any reason Mastercard should be falling in the first place?

Credit card

Image source: Getty Images.

So what

Maybe there is. Stock markets initially began falling as investors, spooked by the rising prices of tech stocks, started taking chips off the table to preserve their paper profits.

Now, Mastercard isn't itself a tech stock, of course. It's a financial. It also hasn't enjoyed the kind of run-up that tech stocks have enjoyed over this past year. Actually, Mastercard's 18%, 52-week gain isn't that far out of the norm for the S&P 500 as a whole, which is up 16%.

Now what

But here's the thing: There's a phenomenon called the "wealth effect," the gist of which is that the more money people feel they have, the more comfortable they feel about spending it. When stocks -- tech stocks, financial stocks, any stocks -- are hitting ever-higher highs, folks feel wealthy and tend to spend.

That's good for Mastercard, because when consumers spend using their credit cards, no matter what they buy, Mastercard gets a cut of the purchase price.

Right now, however, in the middle of a tech rout, investors may be feeling poorer. Thus, they'd be less inclined to pull out their credit cards and spend a lot in the coming weeks and months. That would be bad news for Mastercard ... and maybe even a good reason to feel pessimistic about Mastercard stock today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Mastercard. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Mastercard Incorporated Stock Quote
Mastercard Incorporated
$286.48 (-1.25%) $-3.63

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.