Nu Holdings (NU 1.97%) was surging higher on Monday, up as much as 8% just before noon ET. As of 2:30 p.m., the stock price was still up about 7.2%, trading at $4.41 per share. The fintech is down roughly 53% year to date.
The major indexes were all up on Monday, as the Nasdaq was up 3.3%, and the S&P 500 was up 2.6%, while the Dow Jones Industrial Average was up over 540 points, or 1.8%, as of 2:30 p.m. ET.
Nu Holdings is the holding company for Nubank, a digital bank that primarily serves Brazil. It has also branched out into Mexico and Colombia and has been building market share in those countries as well.
The bank has been growing rapidly overall, achieving record revenue last quarter, as well as a huge jump in new customers, which helped it achieve profitability in Brazil for the first time. The company has the type of potential that caught the eye of Warren Buffett, chair and CEO of Berkshire Hathaway, who added it to the companyʻs investment portfolio recently.
While there appeared to be no direct catalyst for Nu on Monday, there were a couple of factors that may have sent it higher. First, the markets were up pretty much across the board, spurred by the fact that the British pound jumped roughly 2% higher. The pound and the markets overall both reacted favorably to the news that proposed tax cuts by Prime Minister Liz Truss have apparently been nixed.
Also, banks in general have reported decent third-quarter earnings thus far. Last week, JPMorgan Chase and Wells Fargo beat earnings expectations, and on Monday, Bank of America did the same. Rising interest income from higher interest rates have helped, along with an increase in income from bond trading. Also, the bank reported a 12% year-over-year increase in loan balances.
Bank earnings are often a bellwether for the market, so the news thus far has been promising. It shows that the effects of rate hikes on the economy have not been as bad as expected yet, as loan activity remains pretty strong. That, in turn, means that interest income will be higher, with elevated interest rates. Nu Holdings has had some tailwinds from the fact that other banks have done better than anticipated.
But with no movement on inflation and rates almost certain to keep rising, the economy remains a concern.
However, as it is Brazil-based, Nu will be more reactive to the state of the Brazilian economy, which appears to be in better shape than the U.S. economy. Growth in Brazil is expected to be at around 3% this year. The Oct. 30 runoff election could have an impact, but economics expect the economy to remain resilient, no matter who becomes president.
Nu Holdings' valuation is a bit high right now, but it is on the right track. Look for its upcoming earnings report on Nov. 21 to see if it has been able to sustain growth rates and improve its profitability.