What happened
Shares of the artificial-intelligence-focused lender Upstart Holdings (UPST -0.58%) had bounced nearly 10% as of 1:34 p.m. ET today for no obvious reason, although it appears to be rebounding from an up-and-down week that has had no shortage of volatility.
So what
With the Nasdaq Composite up nearly 0.8% as of this writing, Upstart and other fintechs were outperforming the general tech sector after what has been an extraordinarily difficult last six months. Upstart is down roughly 62% in that time period.
The decline has much to do with the fast-changing macro outlook. The Federal Reserve has gone from viewing inflation as "transitory" to seeing it as a serious threat. Consumer prices in February, as measured by the consumer price index, rose 7.8% on a year-over-year basis, the highest level seen in 40 years. Additionally, high gas prices resulting from Russia's invasion of Ukraine could make things worse.
Image source: Getty Images.
However, the Fed after much anticipation began raising its benchmark overnight lending rate at its March meeting this week for the first time since 2018. The Fed also indicated it expects to raise rates at each of its next six meetings this year and then potentially hike rates five more times in 2023.
While the news is more hawkish than expected, it does finally add a little bit of certainty during a period that has been marked by constant uncertainty. Furthermore, Fed Chairman Jerome Powell said in his recent press conference that he doesn't expect a recession over the next year.
Now what
Fintech stocks have been sold off intensely over the last six months, so investors might see the sector as oversold. Furthermore, Upstart's business is all about originating various types of consumer debt, so avoiding a recession would be huge.
Higher interest rates still could negatively impact Upstart and lead to higher delinquency and default rates and higher funding costs. I'm not ready to say the stock is out of the woods yet, but the more clarity there is on the macro outlook, the better Upstart will do, barring a definite recession.
