Credit Card Stocks Mixed Bag: Americans Want to Travel, but Inflation is Soaring

Will Rising Prices Hammer Credit Cards?

With inflation escalating and the Fed suggesting more rate hikes, some market observers wonder if Americans might put the brakes on spending, and how credit card companies will be impacted. As prices rise for everything from gas, groceries, and borrowing costs, many would-be shoppers are finding their budgets stretched thin. The tight labor market has resulted in rising wages, but some ask if this is enough to support continued spending, which would mean less business for credit card companies.

Share prices of Discover Financial Services (DFS), Visa (V), Mastercard (MA), and American Express (AXP) have been stable lately, but rising consumer debt levels may foreshadow trouble ahead.

Travel Spending Take Off

One reason for investor optimism is the increased demand for travel. In March, Visa saw spending on international travel increase by more than 20% from the comparable period in 2019. Some market observers also see evidence of a rebound in travel to the Asia-Pacific region. Growth was minimal in the year’s first quarter, giving the sector plenty of room along the runway for future growth.

Analysts say rising gasoline and airfare prices are unlikely to significantly dent this summer’s travel demand, because the spending is likely to be driven by the wealthy.

Possible Tail Winds

With valuations below their 2019 averages, Visa and Mastercard stock may not appear overpriced and market dynamics could support that. The card companies benefit from the growth in ecommerce, with more people buying things in new categories online including groceries. The rising price of oil could also provide a boost to credit card companies’ bottom line.

For the most part, the movement to online shopping promotes the use of credit for purchases. As consumers adjust to inflation, it remains to be seen if spending is sustained, or if people cut back, perhaps even returning to cash, which some may consider a more-budget-friendly option.

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