What happened
Shares of Upstart Holdings (UPST 0.07%), Affirm Holdings (AFRM 5.11%), and SoFi Technologies (SOFI 1.56%), were all sliding Wednesday after a new government report showed that inflation continues to rise, despite the Federal Reserve's efforts to bring it down.
Investors are getting increasingly worried that with inflation stubbornly high, the Federal Reserve will have to continue aggressively hiking benchmark interest rates. And as that happens, the potential for a significant economic slowdown or a recession grows, which would be bad news for fintechs. As of 1:39 p.m. ET, Upstart was down by 4.4%, Affirm had dipped by 6.4%, and SoFi was off by 0.5%.
So what
The Bureau of Labor Statistics released its much-anticipated inflation report Wednesday morning, revealing that the Consumer Price Index spiked by 9.1% year over year in June, higher than the 8.8% increase some economists had been expecting.
Image source: Getty Images.
With inflation still running red hot, the Federal Reserve will need to continue making significant hikes to the federal funds rate in order to bring rising costs under control.
With that in mind, some investors sold off their shares of Upstart, Affirm, and SoFi. Upstart focuses on artificial intelligence-based lending, SoFi runs a digital bank, and Affirm is a leader in the "buy now, pay later" space. As inflation rises, consumers will likely cut back on their spending, which will lower demand for the services that these companies offer. And if the Federal Reserve's interest rate hikes end up slowing down the economy so much that it tips into a recession, those fintechs could be negatively impacted even further.
NASDAQ: UPST
Key Data Points
Now what
Adding to investors' pessimism Wednesday was a new Bank of America report that forecasts that the U.S. will fall into a recession this year and that the unemployment rate will reach 4.6% by 2023. The current unemployment rate is 3.6%.
It's worth pointing out that not all economists expect a recession this year, but Bank of America's latest prediction is more proof that experts are continuing to update their outlooks on the matter. Just three months ago, the bank said that it didn't expect a recession this year, and possibly not even in 2023.
With the economic view looking bleaker, it's no wonder these fintech stocks tumbled Wednesday.
