What happened

The stock of Upstart Holdings (UPST 5.90%) performed worse than the overall market this week as it fell 15.6% from last Friday's close as of 10:30 a.m. ET on Friday, according to S&P Global Market Intelligence. Upstart had fallen as much as 17.4% during the week. The stock price is down a whopping 86.8% year to date as of Friday morning.

It wasn't a great week for the markets, either, as the Dow Jones Industrial Average was down 1.1%, the S&P 500 fell 3%, and the Nasdaq dropped 5.4% as of 10:30 a.m. ET tofay.

So what

The week got off to a decent start as the stock surged higher on the morning of Nov. 1 after fellow banking fintech SoFi Technologies posted strong third-quarter earnings that morning, with record quarterly revenue and a net loss that beat analysts' expectations. It also raised its adjusted revenue guidance to the $1.517 billion to $1.522 billion range, and its guidance range for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was increased to $115 million to $120 million, up from the previous range of $104 million to $109 million. 

These solid numbers for SoFi were buoyed in part by an increase in loan activity, and that temporarily boosted investor sentiment toward Upstart, which has a platform that uses artificial intelligence to handle loan requests.

But later that morning, any tailwinds from the SoFi earnings turned to headwinds as Upstart posted a filing it made with the Securities and Exchange Commission (SEC) about layoffs: "Given the challenging economy and reduction in the volume of loans on our platform, on November 1, 2022, we notified approximately 140 hourly employees who help process loan applications that their positions had been eliminated."

Now what

As if the layoffs weren't bad enough, the reason for them spooked investors even more: a reduction in loan volume, which is bad news since loan activity is the primary source of Upstart's revenue.

The week did not get any better when the Federal Reserve Board raised the federal funds rate by another 75 basis points, marking the fourth consecutive 75-point hike this year. While chairman Jerome Powell acknowledged that the Fed will take into account the impact of future rate hikes on economic activity, he also said there is still a "ways to go" to bring down inflation, adding that the ultimate level of interest rates will likely be "higher than previously expected."

For a fintech that is already struggling, the prospect of rates going higher than expected, potentially leading to a recession, is not ideal. Investors should be wary right now and wait for more news when Upstart posts its quarterly results on Nov. 8.