What happened

Few stocks were immune from the market meltdown in June, including Mastercard (MA 1.33%), which dropped 11.8% in the month, according to data from S&P Global Market Intelligence. 

The credit processor and payment provider underperformed the S&P 500, which was down 8.4% in June, and the Nasdaq Composite, down 8.7% for the month. Mastercard is down about 10% year to date as of July 7.

So what

Mastercard was hurt by many of the same forces that tipped the scales downward for a lot of growth stocks in June. The primary catalyst was the release of the May Consumer Price Index figures, which showed an 8.6% increase in inflation over the past year, the largest year-over-year gain in 41 years. Mastercardʻs stock price dropped from $364 at the close of the market on June 7 to around $320 at the closing bell on June 13.

It fell further when the Federal Reserve Board met on June 15 to raise interest rates by 75 basis points to the 1.5%-1.75% range. Rising inflation and rising interest rates to combat it sent most growth stocks reeling due to concerns about a recession. For a company like Mastercard, which relies on consumer spending to generate revenue, economic slowdowns are not ideal.

But there were some positive developments last month as Mastercard launched new business cards with both Verizon and PayPal.

Now what

While the direction of the economy is a huge issue for Mastercard, there are some positive trends afoot. The summer travel season is off to a flying start (pun intended) as people are taking off in huge numbers after years of pent-up demand. Mastercard estimates that $1.5 billion more people will fly globally this year than last, if flight booking trends continue at the current pace. Also, tourism spending is expected to be 34% higher than it was before the pandemic.

Mastercard also anticipates robust spending in the back-to-school season (July through September), with retail sales expected to be up 7.5% over last year and 18.3% compared to 2019.

Mastercard is down 10% year to date, and most analysts rate it as a buy, with a consensus price target of $430 over the next 12 months, up 33% from current levels. It also has a relatively low forward price-to-earnings ratio of 30, down from 45 a year ago.

Mastercard has historically been able to navigate downturns well as it is part of a duopoly with Visa in the credit processing space, but these are unusual times, so keep a close eye on economic indicators.