What happened
Shares of Upstart Holdings (UPST -2.21%) rallied on Wednesday, climbing as much as 8.5%. As of 1:55 p.m. ET, the stock was still up 7.2%.
The major market indexes were trading slightly higher and while this trend no doubt helped push the fintech stock higher, it was most likely the prospect of an upcoming rate hike that provided additional tailwinds.
So what
There didn't seem to be any company-specific news driving the gains, but macro developments are the likely culprit.
The Federal Reserve Bank is concluding the two-day meeting of the Federal Open Market Committee, which decides on the direction and magnitude of interest rate changes. Fed Chair Jerome Powell will be helming a press conference at the conclusion of the committee's deliberations and has widely telegraphed a 0.75% rate hike, which will take the benchmark lending rate to a range of 3% to 3.25%. This would mark the highest rate since early 2008.
There's also the possibility that the Fed could increase rates even more aggressively, instituting a 1% increase, an unprecedented step the Central Bank has never taken since it began using rates to manage the economy back in 1990.
Now what
So what does all this have to do with Upstart? Like many high-growth stocks with lofty valuations, Upstart has taken it on the chin, particularly given the current macroeconomic uncertainty. Upstart is currently down a mind-boggling 94% from its high reached late last year. As a result, it's trading near its lowest valuation ever, with a price-to-sales ratio of just 2, which is likely attracting bargain shoppers.
Furthermore, financial institutions and lenders tend to benefit from higher interest rates, capitalizing on the wider spread between the rates they pay on deposits and the rates they charge for loans -- provided there isn't a prolonged recession leading to more loan defaults. Upstart's artificial intelligence-based lending platform is the choice of a growing number of banks and financial institutions to more accurately assess the likelihood that consumers will pay back loans. And what's good for lenders is good for Upstart. At this level, Upstart stock looks downright interest-ing.
