Why Upstart, Affirm and Square Fintech shares rose on Monday

What happened

This year continues to be one for the record books – and not in a good way. The trifecta of a bear market, 40-year high inflation and the potential for a recession have weighed on both consumer and investor sentiment. With so much bad news, market watchers seem to be seizing all the good news as a reason to bid on beaten stocks, and a positive reading on consumer spending sent many investors shopping for good buys.

This led to the shares in a number of companies in financial technology (fintech) increasing on Monday, which Upstart (OPST 1.44%) rose as much as 11.3%, Confirm inventory (AFRM 3.38%) jumped as much as 10.5%, and Block (SQ 0.44%) rose as much as 5.5 percent. By the end of the trading day, the rally had turned course. However, these three shares stopped reversing, and at the end of the market the trio traded even higher, up 1.4%, 3.4% and 0.4% respectively.

So what

Many large banks reported earnings in recent days, and as a whole the results were stronger than expected. More importantly, management comments pointed to the resilience of the consumer, suggesting that a recession is no longer a matter of course.

Citigroup (C 0.18%) was such a bank. At the conference call to discuss the company’s second-quarter results, CEO Jane Fraser downplayed the potential for a recession. “While sentiment has changed, little of the data I see tells me that the United States is on the verge of a recession,” she said. “Consumption spending remains well above pre-COVID-19 levels, with household savings providing a cushion for future stress … You can see how resilient the consumer is in the United States through the high payment rates and the low level of credit losses.”

Bank of America (BAC 0.03%) was another of these banks, and CEO Brian Moynihan was equally bullish. “Our U.S. consumer customers remained robust with continued strong deposit balances and consumption levels,” he said. “Lending growth continued across our franchise, and our marketing teams helped clients navigate significant volatility that reflects financial uncertainty.”

A recent report from the US Department of Commerce on consumer spending seems to support the views of these bankers. Preliminary estimates for June indicate that retail sales rose 1% compared to May, rising 7.7% year-on-year, although consumers faced higher food and fuel prices. Consumers make up about 70% of gross domestic product (GDP) in the United States, so spending is a key indicator of the strength of the economy.

What now

Due to the perceived urgency of the current economic situation, some investors miss the forest for the trees. Fintech is relatively new in the big picture, and the remaining opportunity is significant. In fact, the global fintech market was valued at about $ 113 billion last year and is expected to almost triple to $ 333 billion by 2028, a compound annual growth rate of almost 20%.

Each of these fintech companies is positioned to take its rightful place among the financial elite and increase its share of the industry in the long run. Upstart disrupts the traditional lending paradigm by using artificial intelligence (AI) to identify a larger number of creditworthy consumers. Affirm is among the leaders in buying now, paying later movement, and offering installment loans at the point of sale. Block is one of the original fintech providers, making the Square card reader the dominant payment processor for small business owners.

Finally, each of these shares is a relative bargain. Block, Shopify and Global-E Online are traded at historically low values ​​on a price-to-sale basis, and are traded at 2, 2 and 3 times futures sales, respectively. Investors are gently wading back into stocks at good basement prices, helping to send these fintech stocks higher.