Growth and value investors who thought that Block (SQ), PayPal (PYPL), and fintech were on sale now hold losses. Block’s brand worsened when Hindenburg Research published a short article against it.
PayPal hired a new CEO. This initially boosted the stock, until profit-takers sold shares aggressively.
Sofi (SOFI), Upstart (UPST), and Affirm (AFRM) are among the other fintech stocks that are underperforming.
Markets are anticipating a credit crunch ahead after the Fed communicated a willingness to raise interest rates again. It will not cut rates as soon as markets expected. This will pressure fintech firms the most.
Financial institutions will have an edge over their online competitors. They have the scale, physical branch presence, and stronger balance sheet to outflank both Block and PayPal. Still, TD Bank (TD), Scotia (BNS), Wells Fargo (WFC), and Citigroup (C) traded lower recently. They erased their summer rally because the risk of a recession is higher.
Investors exposed to fintech stocks should expect more underperformance ahead. The market is bracing for weaker transaction volumes. Watch established brands instead. This includes Visa (V) and Mastercard (MA). Those firms have a stronger global network. They have more customers that are less likely to cut their activity in bad times.
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