What happened
Shares of Block (SQ -2.28%), Sea Limited (SE -2.20%), and StoneCo (STNE 0.26%) were soaring on Wednesday, up 11.4%, 10%, and 9.7%, respectively, as of this writing.
While each of these companies is different from the others, all are levered to economic activity, with fintech as a significant part of their offerings. Block -- formerly known as Square -- offers a payment processing platform for small merchants, as well as a consumer fintech ecosystem with its Cash App. Though Sea's largest businesses today are its Garena mobile games platform and its Shopee e-commerce site, its SeaMoney fintech platform is its fastest-growing segment. And StoneCo is a Brazilian payment processor that has been expanding into micro-loans, insurance, and other financial services for its merchant and consumer clients.
Wednesday saw oil prices drop from their recent highs, while long-term interest rates rose, which is typically good for economically sensitive stocks like financials. These three are also high-growth stocks with minimal or no current profits, so each had been battered this year amid concerns over higher interest rates.
Therefore, when the macroeconomic picture turned more positive Wednesday, each stock soared.
So what
There wasn't any material news out of any of these companies Wednesday, except for the fact that StoneCo changed the date of its fourth-quarter earnings release from March 10 to March 17. It's actually a little bit curious that management felt the need to delay its earnings release by a week just a day ahead of the originally scheduled date, so that's something for investors to monitor.
Still, conditions in the global oil market and developments in the Russia-Ukraine conflict trumped everything. The prices of both West Texas Intermediate and Brent crude were down by more than 12% as of mid-afternoon Wednesday -- similar to the percentages that Block, Sea Limited, and StoneCo were up by. Oil prices have spiked further in recent days as Washington moved to halt U.S. imports of Russian oil, and other countries are pondering similar boycotts. As the price of oil surged, fears that a recession may occur came to the fore, with long-term Treasury yields falling and the yield curve -- i.e., the difference between short-term and long-term rates -- narrowing.
That combination sent financially sensitive stocks down. All three of these companies' businesses rely on a combination of payment processing, which benefits from increasing economic activity, and lending, which benefits from a wider yield curve.
Therefore, as oil traders took profits, sending oil prices down, and long-term Treasury yields rose -- at least for one day -- the reversal of those prior trends sent these stocks soaring.
Image source: Getty Images.
Now what
These are all exciting growth companies that have shown the ability to execute, and each was a massive winner during the pandemic. However, inflation, the Fed's plan to raise interest rates, and geopolitical turmoil have punished their stocks as investors sold speculative assets and turned to safe-haven investments.
Sea Limited and StoneCo have been hit especially hard since they operate in markets outside the U.S. and are therefore perceived as riskier. StoneCo has also been contending with high inflation and low growth in Brazil -- an ugly combination known as stagflation that has been battering the Brazilian economy since last summer. Still, its stock -- down a shocking 87% over the past year -- already reflects those issues.
However, if inflation is brought under control, or if the Russia-Ukraine situation is resolved in a way that does not weigh heavily on the global economy, these stocks could soar again -- assuming that the world doesn't go into a recession for some other reason. I personally prefer Sea Limited as an investment to play a rebound, as it's the most diversified of the three -- operation across video games, e-commerce, and fintech in several markets where digital adoption is underpenetrated. It's also growing the fastest, with revenue up 106% last quarter. However, given how far off their highs they are, each of these stocks could soar if the geopolitical situation resolves.
That being said, one good day doesn't mean investors are out of the woods. If the Russia-Ukraine conflict gets worse and supply shocks cause an inflationary recession, these stocks could take another turn downward. Therefore, investors looking to buy the dip may wish to dollar-cost average their share purchases until the macro picture becomes clearer.
