What happened
Like most of the market on Wednesday, PayPal Holdings (PYPL 1.62%) finished lower on the day, dropping 4.4% to $79.45 at the closing bell.
It came as no surprise as the major indexes were all down with the Dow Jones Industrial Average dropping 505 points (-1.6%), the S&P 500 falling 96 points (-2.5%), and the Nasdaq sinking 366 points (-3.4%).
So what
There is not a lot of mystery as to why PayPal, along with the rest of the market, dropped on Wednesday. The catalyst was the Federal Reserve Board, which raised interest rates by 75 basis points today, its fourth straight hike. The benchmark federal funds rate, after this hike, is now in the 3.75% to 4% range.
The 75-basis-point increase was not unexpected; in fact, the market initially spiked when the Fed announced it at 2 p.m. ET. That was perhaps due to a statement acknowledging the impact of hikes on economic activity.
NASDAQ: PYPL
Key Data Points
"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the statement read.
But that spike was short-lived; the market dropped after Fed Chair Jerome Powell struck what many perceived as a more hawkish tone toward future rate increases in a press conference. "There is significant uncertainty around that level of interest rates," Powell said. "Even so, we still have some ways to go, and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected."
Now what
Financial companies, particularly those in the payments industry, are quite sensitive to interest rate hikes, as higher rates tend to slow down economic growth, which leads to less consumer spending. So Powellʻs suggestion that rates could ultimately finish higher than previously expected rekindled fears of a recession.
You don't have to wait long to see what kind of impact rising rates have had on PayPal lately as the fintech will report third-quarter earnings tomorrow, Nov. 3, at 2:30 p.m. PT/5:30 p.m. ET.
