Why Mastercard, Paypal and StoneCo stocks are falling today

What happened

Shares of several large payment stocks took a hit on Thursday as the broader stock market sold off following the Federal Reserve’s interest rate hike and investors became more concerned about the macroeconomic outlook.

Actions of MasterCard (BREAST -5.11%) traded nearly 5% lower at 1:10 p.m. ET, shares of PayPal (PYPL -6.07%) had fallen around 5.5%, and shares of the Brazilian fintech StoneCo (STNE -10.34%) down more than 8%.

And that

On Wednesday, the Fed raised its benchmark overnight lending rate, the federal funds rate, by 75 basis points, the largest such move the agency has made in a single meeting since 1994. now it is within a range of 1.5%. and 1.75%.

That decision came on the heels of the government’s latest report on the Consumer Price Index (CPI), which measures inflation based on the prices of a commonly purchased basket of goods and services. In May, the CPI rose 8.6% year over year. Not only was it higher than economists expected, but it was also an indication that inflation may not yet have peaked. In response, the Fed opted for a 75 basis point hike, versus the 50 basis point hike the market had expected a few days earlier. Fed Chairman Jerome Powell also said the Fed would likely raise interest rates by another 50 to 75 basis points at its next meeting in July.

The businesses of Mastercard, Paypal and StoneCo rely heavily on consumer spending and business activity. Investors are now concerned that as long as high inflation persists, the Fed will have to remain aggressive with monetary policy, increasing the likelihood of a recession or stagflation. Either would hamper consumer and business spending.

“Like Atlas with the world on its shoulders, the consumer has been supporting the US economy and, to a large extent, the world throughout the year,” said a team of barclays strategists recently wrote in a research note. “But that could be about to change.”

Recently, large retailers like Goal they have noticed that their inventories are quite high right now as consumers are shifting their spending away from discretionary purchases and more towards necessities. People’s savings have also started to dry up due to how expensive everything has become.

And companies have begun announcing serious job cuts. In the tech sector alone, there were 16,000 job cuts in May and 7,000 more in the first half of June, according to a recent report. fast company article referencing data from Layoffs.fyi. Recently, large cryptocurrency exchange base of coins announced that it will lay off 18% of its workforce as it prepares for “crypto winter.”

Now what

Obviously the economic environment is getting much tougher and that could be problematic for these three companies.

However, I definitely feel good about Mastercard in the long run. It has built one of the largest payment rails in the world, and it can work well even during periods of high inflation because as purchases get more expensive, your transaction fees on those purchases rise with it. A slowdown in consumer spending would be detrimental to its business, but the company is big enough to weather a recession and has a bright future ahead of it with the shift to digital payments. I take a similar opinion when it comes to Paypal.

StoneCo is in a much riskier position than these two because it is much earlier in its journey and operates in Latin American economies that could be more difficult and volatile markets in the coming years. Still, at today’s prices, I’m more bullish on StoneCo than not.

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