Stock Market Wrap-Up: Coronavirus Checks Send Card Giants Soaring

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Wednesday was another good day for the stock market, marking the first time in a while that the Dow Jones Industrial Average (DJINDICES:^DJI) managed to post significant back-to-back advances. Investors were pleased to see congressional leaders reach an agreement on a $2 trillion stimulus plan, with assistance for both individuals and businesses to try to forestall the economic impacts of the COVID-19 pandemic. Yet the Dow and the S&P 500 (SNPINDEX:^GSPC) ended with much smaller gains than they’d enjoyed earlier in the day, and the Nasdaq Composite (NASDAQINDEX:^IXIC) actually lost ground.

Today’s stock market

Index

Percentage Change

Point Change

Dow

2.39%

496

S&P 500

1.15%

28

Nasdaq Composite

(0.45%)

(34)

Data source: Yahoo! Finance.

The payment processing industry was among the top gainers in the market Wednesday, with Mastercard (NYSE:MA), Visa (NYSE:V), American Express (NYSE:AXP), and Discover Financial Services (NYSE:DFS) all seeing gains of 5% to 11% on the day. The moves higher continued from previous sessions, and some added impetus from the coronavirus stimulus package could boost their prospects further.

Why payment processors have struggled

The plunge in these card giants over the past month has largely come from fears that people would back off their previous spending plans. That’s especially important for Mastercard and Visa, because they don’t lend to cardholders but rather make their money from processing payment transactions. When payment volumes decline from economic stress, then their revenue falls as well.

Image source: Getty Images.

At the same time, worries about the impact of the coronavirus pandemic on the global economy have raised concerns about whether people will be able to pay their card bills. That’s more important for American Express and Discover, because they both run their own payment networks and extend credit to cardholders. When credit quality deteriorates, it can create more losses for these two companies, hurting their profits and eating into growth.

The good news for card giants

Today’s news had something good for both sets of payment processing companies. The stimulus package provides coronavirus checks for most Americans, with payments of $1,200 for adults and $500 for children to go to all those with incomes below certain limits. That money will help give Americans more confidence that they’ll be able to afford the things they need, especially for those who are out of work as a result of the pandemic. Many of them will use cards from one of these four companies to make those purchases, and that should help boost their overall results.

For American Express and Discover, moreover, stimulus payments should help keep their cardholders in better financial condition. If the payments help people make at least minimum payments longer rather than sending more people into default, then it could be a huge boon to card issuers. That’s one reason Discover’s 11% rise outpaced the 4.5% gain for Visa.

What’s still unclear is how long it will take for people to receive coronavirus checks. If it takes longer than hoped, then the impact might not be as quick for these four payment processing stocks as it otherwise would be. Nevertheless, shareholders have hope that card giants will be able to weather the storm and keep growing as more people move away from cash toward electronic-based payment systems.