Why tax refunds and stimulus payments are bad news for credit card stocks – American Express Company (AXP)
Stimulus checks and tax refunds could be a positive blow to many stocks, but Bank of America analyst Mihir Bhatia said they could be bad news for many stocks. credit card short-term businesses.
What happened? Credit card stocks, including Alliance Data Systems Company (NYSE: ADS), American Express Company (NYSE: AXP), Discover financial services (NYSE: DFS) and Synchrony Financial (NYSE: SYF) have outperformed the overall market so far in 2021 in hopes that the end of the pandemic will lead to a boom in credit card spending. Bhatia said Americans have paid off their credit card debt throughout the pandemic and industry-wide credit card balances have fallen 10.8% in 2020.
Bhatia said loan growth continued to slow in early 2021.
“Even if the economy reopens and spending increases, we believe card balances are likely to be put under pressure by tax refunds and stimulus measures,” he wrote in a note. .
Why this is important: As a result, Bank of America predicts that credit card loan growth will be lower than consensus expectations in 2021, particularly in the first half of the year.
- Bhatia said American Express and Alliance Data Systems could be particularly affected due to their exposure to discretionary spending and in-store sales.
- Synchrony could be more isolated thanks to its partnerships with companies like Amazon.com, Inc. (NASDAQ: AMZN), Paypal Holdings Inc (NASDAQ: PYPL) and Lowe’s Companies Inc (NYSE: LOW).
- Discover might also be more isolated due to the focus on guns.
Benzinga’s point of view: While it’s generally good news for the financial health of Americans that they’ve paid off their credit card debt in the past year, it’s bad news for the credit card companies who are profiting from the interest. that they earn on this debt.
Stimulus payments and tax refunds won’t last long, and Americans are likely to splurge in retail, restaurants, travel and entertainment through the summer months.
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