Here’s why American Express and other credit card stocks are rising on Monday


What happened

The stock market rose sharply on Monday as investors cheered positive developments in the fight against COVID-19. As of 2:50 p.m. EDT, the Dow Jones Industrial Average and the benchmark S&P 500 index were up 3.9% and 3.3%, respectively.

Parts of the stock market were doing even better. The financial sector was one of the best performers on Monday, especially credit card stocks. American Express (NYSE:AXP) was 8% higher, banks focused on credit cards Capital one (NYSE:COF) increased by 9% and Discover (NYSE: SDF) increased by 7%.

Image source: Getty Images.

So what

The main reason for the sharp rise in the stock market is the news that by Moderna (NASDAQ:ARNM) The COVID-19 vaccine is showing promising results in its early-stage clinical trials. The short version is that the trial involved 45 people who each received one of three different sized doses of the potential vaccine. And every 45 developed antibodies against the virus.

Admittedly, this is a very small sample, and there is still a lot of data to collect before Moderna can assess the vaccine’s effectiveness in actually preventing the virus. For example, data on so-called neutralizing antibodies (those that prevent infection) are only available in eight of the 45 patients so far. Even so, this is certainly good news.

You might be wondering what this has to do with these credit card companies, and the answer is “more than you think”.

In order to return to pre-pandemic trading conditions, credit card issuers need two basic things. First, they need the economy to reopen and unemployment levels to start normalizing, so people don’t have trouble paying their bills. The main reason credit card companies have been so battered recently is the possibility of high defaults. The sooner the economy returns to normal, the better.

Second, and more obviously, credit card issuers rely on consumers’ ability and willingness to spend money. With so much economic uncertainty (and many retailers closed), it’s no surprise that consumer spending is much lower than it was this time last year.

Now what

Here’s the point: economic stimulus is certainly helpful, but for our economy to really back to normal, we’re going to need a vaccine. Period.

Admittedly, today’s news is far from conclusive data. And even in the best-case scenario, a vaccine would probably not be widely available before the end of the year. But it certainly gives investors hope that a vaccine is on the way, and we can be back to business as usual before too long.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

Previous Don't try to buy better credit to buy a house
Next How does your credit score compare to that of your neighbours?