What happened

This year continues to be one for the record books -- and not in a good way. The trifecta of a bear market, 40-year-high inflation, and the potential for a recession have weighed on consumer and investor sentiment alike. With so much bad news, market watchers appear ready to seize on any bit of good news as a reason to bid up beaten-down stocks, and a positive reading on consumer spending sent many investors shopping for bargains.

That caused shares of a number of financial technology (fintech) companies to rally on Monday, as Upstart (UPST -3.36%) surged as much as 11.3%, Affirm Holdings (AFRM -2.27%) jumped as much as 10.5%, and Block (SQ -2.76%) rose as much as 5.5%. By the end of the trading day, the rally had reversed course. These three stocks, however, bucked the reversal, and as of the market close, the trio was still trading higher, up 1.4%, 3.4%, and 0.4%, respectively.

So what

Numerous big banks reported earnings over the past several days, and as a whole, the results were stronger than expected. More importantly, management commentary pointed to the resilience of the consumer, suggesting that a recession is no longer a foregone conclusion.

Citigroup (C 2.50%) was one such bank. On the conference call to discuss the company's second-quarter results, CEO Jane Fraser downplayed the potential for a recession. "While sentiment has shifted, little of the data I see tells me the U.S. is on the cusp of a recession," she said. "Consumer spending remains well above pre-COVID levels with household savings providing a cushion for future stress ... You can see how resilient the consumer is in the U.S. through the elevated payment rates and the low level of credit losses." 

Bank of America (BAC 2.14%) was another of these banks, and CEO Brian Moynihan was equally bullish. "Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels," he said. "Loan growth continued across our franchise, and our markets teams helped clients navigate significant volatility reflecting economic uncertainty." 

Indeed, a recent U.S. Department of Commerce report on consumer spending seems to support the views of these bank executives. Preliminary estimates for June indicate that retail sales rose 1% compared to May, rising 7.7% year over year, even as consumers faced higher prices for food and fuel. Consumers make up roughly 70% of gross domestic product (GDP) in the U.S., so spending is a key indicator of the strength of the economy.

Now what

Because of the perceived urgency of the current economic situation, some investors are missing the forest for the trees. Fintech is relatively new in the grand scheme of things, and the remaining opportunity is significant. In fact, the global fintech market was valued at roughly $113 billion last year and is expected to nearly triple to $333 billion by 2028, a compound annual growth rate of nearly 20%. 

Each of these fintech companies is positioned to take its rightful place among the financial elite and grow its share of the industry over the long term. Upstart is disrupting the traditional lending paradigm by using artificial intelligence (AI) to identify a greater number of credit-worthy consumers. Affirm is among the leaders in the buy now, pay later movement, offering point of sale installment loans. Block is one of the original fintech providers, making its Square card reader the dominant payment processor for small business owners.

Finally, each of these stocks is a relative bargain. Block, Shopify, and Global-E Online are trading at historically low valuations on a price-to-sales basis, trading at 2, 2, and 3 times forward sales, respectively. Investors are cautiously wading back into stocks at bargain-basement prices, helping send these fintech stocks higher.