Categories: Economic News

Why shares of Upstart, SoFi and Lemonade initially fell, then shot higher today

What happened

Shares of Upstart Holdings (UPST 9.67%), Sofi Technologies (SOPHIE -0.53%)i lemonade (LMND -0.52%) it plummeted at the market open today, down more than 5% to start the morning. But by midday, each had recovered, with Upstart surging to an 8.4% gain, SoFi up 1.8% and Lemonade up 1.7% as of 1:46 p.m. ET.

What prompted such a large investment? It’s hard to say, as there wasn’t much company-specific news on Tuesday. However, recession fears could be easing, just as a high-profile hedge fund revealed a new position in both Upstart and SoFi, perhaps boosting sentiment for these tech stocks fintech.

And what

Each of these stocks is economically sensitive, given that they are financial stocks that appeal to millennial and Gen Z consumers. Upstart uses artificial intelligence (AI) to underwrite unsecured personal loans and auto loans; SoFi targets undergraduate students with student loans and then markets its full suite of banking and financial products over time; Lemonade is an insurer that streamlines the insurance application process by using AI instead of paying agents.

It’s hard to know exactly why these companies fell so much at the opening. Each has had a nice rebound from their lows a couple of months ago, so maybe that was due to investors taking some profits.

This morning, it was announced that the US industrial production index for July grew 0.6% month-on-month, higher than the 0.3% growth expected, boosted by the increase in the production of automobiles One might think, since industrial production growth came in a little hot, that the Fed might have to be more aggressive in raising interest rates.

However, this was just one data point and not as consequential as other inflation-related readings. It also shows that the US economy is not in recession, at least not yet.

And the New York Fed announced that US consumer revolving debt balances rose 13% year over year to $1.125 trillion in the second quarter of 2022. Not only is this the largest annual increase in 20 years, but also had the previous revolving debt balances. – Maximum pandemics.

You can attribute this increase in debt to high inflation and a consumer who wants to spend. However, rising debt levels likely made investors cautious at first, as there are fears the Fed could tip the economy into recession. If that happens, there could be a lot of overdue or unpaid debt next year.

More troubling was a rise in delinquencies of 90 days or more from 3.04% in the first quarter to 3.35% in the second quarter, which New York Fed analysts said was concentrated among income borrowers lower and subprime. This is likely to hit Upstart the hardest of the three stocks, and thus may explain why the stock had fallen the most to start the day.

On the other hand, much of this news was already apparent to those who had been following fintech stocks this earnings season, especially Upstart, which had lowered its revenue and earnings guidance next quarter due to the tightening of financial conditions.

But things seemed to change around noon, probably for two reasons. first, Walmart earned better than feared. This seemed to indicate that the American consumer might not be in such dire straits. Walmart disclosures have been particularly damaging to markets this year, given its size and importance to the economy.

Second, around midday, growth-oriented hedge find Coatue Asset Management said it had taken new positions in both Upstart and SoFi in the second quarter. With SoFi down 73% and Upstart down 91% from their all-time highs, it looks like a big institutional investor’s vote of confidence is weighing on the stock far more than the resurgence of tough economic news, which can already feed into the market share prices.

UPST percent discount all-time high. Data by YCharts.

Now that

Each of these growth fintech stocks have been battered in the first half of the year and are still far, far below their previous levels.

So it might not take as much good news to send these stocks higher. Last week, Lemonade beat its revenue estimates. Although still posting losses, the stock soared on management’s claim that the current third quarter would mark “peak losses.” In addition, management promised that it would reduce spending and that its existing capital was sufficient for the company’s profitability.

Meanwhile, SoFi also rose after its earnings on Aug. 2, when it reported robust user acquisition, while beating revenue estimates and raising guidance for the year.

And while Upstart missed expectations and guided to the downside on Aug. 8, the stock has fully recovered since then, and then some. Perhaps now investors believe that the worst news is already in the share price. With Coatue’s vote of confidence, investors now seem to see a big recovery, given that Upstart has sold so much.

Still, this is just one day; these stocks can be volatile both up and down. If inflation does not continue to fall as it did in July and August, the fortunes of these three fintechs could reverse.


Published by

Recent Posts

More on the Interest-Income Channel

Last weekend, I wrote about Warren Mosler's argument that the Fed's rate hikes could be…

1 month ago

More information in the Interests Channel

Last weekend, I he wrote on Warren Mosler's argument that the Fed's rate hikes could…

1 month ago

Biden wants to reduce the deficit. Powell wants to reduce inflation. Do rate hikes undermine both goals?

Last week, the chairman of the Fed, Jerome Powell said, "the disinflationary process has begun".…

1 month ago

Quick thoughts on the CBO budget and economic outlook

Earlier this week, I joined Romaine Bostick and Scarlet Fu Bloomberg TV. The Congressional Budget…

1 month ago

Eight states have joined forces to raise taxes on America’s wealthiest

Tomorrow morning, I'll be joining CNBC's Squawk Box to talk about a new effort tax…

2 months ago

Mike Pence would pick up where Paul Ryan left off

Former Vice President Mike Pence talks about privatizing Social Security. The remarks came Thursday before…

2 months ago