Two words might explain Tuesday’s stock market action: “Relief rally.” Because Wall Street, it’s famously been said, abhors a vacuum and hates uncertainty. When uncertainty lifts and when questions get answered, investors may feel it’s safe to buy again.
That may be what we are seeing in this session Tuesday (Nov. 24), where the Dow Jones Industrial Average crossed the 30,000-point mark for the first time ever. That’s a nice round number, and a psychological barrier of sorts. It reflects relief that 1) The transition to a new administration is underway with the release in funding from the GSA; and 2) Vaccines are on the horizon that seem promising in their ability to put an end to the pandemic.
The rally has been broad, but drilling down a bit, we see that tech stocks — and the subset of tech stocks that are specifically tied to “payments companies” — are soaring.
One day’s rally does not a trend make. It’s worth examining the year-to-date performance of some of the marquee names in the sector (which don’t necessarily trade as part of the Dow but may be components of the tech-heavy NASDAQ) to gain perspective on just how infectious the enthusiasm has been — and which takes into account the extreme volatility we saw earlier in the year as the pandemic hit with full force.
Square is up more than 230 percent year to date. PayPal has gained more than 85 percent. Apple, for example, is up 56 percent year to date; Mastercard is up a bit more than 11 percent, as is Visa.
Expectations for an improved economy mean that consumers — who have proven to be the resilient bedrock underpinning GDP — will continue to spend. Where there’s spending, of course, there are transaction fees and other revenue streams for payments companies. Where there are buoyant revenue streams, there are fattened profit margins. Generally speaking, stock multiples are applied to earnings. If earnings increase, even keeping the same multiple translates into a higher stock price.
The way we pay is shifting, of course. Earnings results from card companies show that debit remains a payment method of choice, and contactless payments are making inroads at both Visa and Mastercard. Mastercard, for example, said contactless payments represented 41 percent of transactions, done in person, globally, compared to 37 percent last year. Visa, for its part, said debit spend was up 20 percent and noted that contactless payments were 43 percent of face to face transactions.
The holiday season may prove a near-term tailwind. As noted in this space this week, the National Retail Federation (NRF) has estimated that retail sales across the U.S. will rise between 3.6 percent and 5.2 percent over what they were last year — worth as much as a whopping $766.7 billion. Within the overall sales figures, of course, lie online spending, where Adobe Analytics study quoted by PYMNTS finds that online sales made for the holidays could exceed $200 billion.
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