What happened

A couple of fintechs, PayPal (PYPL -0.98%) and Upstart (UPST -4.81%), were volatile on Thursday. As of 11:45 a.m. ET, PayPal was down slightly, 0.1%, after dropping as much as 5.3% at the opening bell. Upstart was up about 1.6% at 11:45 a.m. ET after plummeting 10.3% just after 9:30 a.m. ET.

The major indexes were down early but surged back up. At 11:45 a.m. ET, the S&P 500 was up 58 points (1.6%), the Dow Jones Industrial Average was up 510 points (1.7%), and the Nasdaq Composite had gained 147 points (1.4%).

So what

The major catalyst that rocked these two fintechs, as well as most of the market, was the September Consumer Price Index (CPI) report. The CPI, which measures inflation, rose 0.4% in September over the previous month, which was more than the market expected, given the fact that the Federal Reserve Board has been aggressively raising interest rates for the past six months to lower inflation.

Year over year, the CPI jumped 8.2%, which is nearly as high an increase as August, when it climbed 8.3%. While it is lower than the 9.1% year-over-year increase in June, which was a 40-year high, the 8.2% increase remains near its highest level in four decades.

Core inflation, which excludes food and energy prices, was up 6.6% year over year, the highest jump since 1982. Core inflation rose 0.6% over August, more than estimates. The fact that inflation is still high and is not coming down all but confirms that the Fed will continue to raise interest rates.

However, the market surged back from early lows in the late morning. The surge was related to some analysts saying the market bottom may have finally been reached. This gave investors hope, at least temporarily.

Now what

With the Fed likely to continue to raise rates again at its November meeting, and into next year, the effect will be a continuing slowdown of the economy.

As a payment stock, PayPal should see an impact from reduced consumer spending. As a fintech that uses artificial intelligence to provide loans, through bank and credit union partners, Upstart would likely be affected by a decline in loan activity.

Both of these companies managed to grow revenue year over year in the second quarter, but their stock prices have continued to drop. PayPal is down 55% year to date (YTD) while Upstart is down 83% YTD. While the valuations for both of these stocks have come down, there could be more pain ahead in the short term, given the economic environment.

Investors will want to pay close attention to the third-quarter earnings for both of these stocks. PayPal is scheduled to release Q3 earnings on Nov. 14, while Upstart will release its quarterly earnings on Nov. 8.