What happened
Affirm Assets (AFRM -3.60%) ended the day down 3.8% on Friday, closing at $19.28 per share. The stock price had fallen 6.3% around 2:54 p.m. ET
The market was down sharply on Friday, with the Dow Jones Industrial Average down 486 points (1.6%), the Nasdaq fall of 199 points (1.8%) and the S&P500 down 65 points (1.7%).
So what
For banks and fintechs, particularly those in the payments sector, the decline is likely due to a hangover effect from the Federal Reserve’s 75 basis point interest rate hike on Wednesday. Rates have now risen 75 basis points at each of the last three Fed meetings. The benchmark rate is now 3% to 3.25%, the highest since 2008.
Affirm is a “buy now, pay later” company that offers consumer installment loans at the point of sale. Raising interest rates is the Fed’s tool to slow the economy and fight high inflation. Since the needle has barely moved, the Fed is expected to continue raising rates through the end of 2022 into 2023.
Many investors fear this could lead to a recessionary environment or weak gross domestic product growth, which would hurt banks and payment providers. Affirm wasn’t the only financial stock to fall on Friday, as MasterCard, Citigroupand Goldman Sachs were all down.
Now what
Bad news on interest rates was offset by good news elsewhere for fintech, although it doesn’t appear to be good enough to lift the stock price today.
On Thursday, analysts at Mizuho released a research note citing promising trends for Affirm’s 30-day delinquencies, which appeared to be declining in August. And while 60- and 90-day delinquencies continued to rise last month, the increases appeared to be at a slower pace. The constant increase in payment defaults is a major concern. Mizuho maintained a Buy rating and price target of $42, The Fly reported. This will be an interesting metric to watch, especially in a slowing economy.
Another bright spot for Affirm this week was the news that it has expanded its relationship with Amazon (AMZN -3.01%)extending its service to Canadian Amazon customers.
However, despite these developments, there is still too much uncertainty surrounding Affirm’s economics and profitability to warrant a purchase at this time.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. David Kovalesky has no position in the stocks mentioned. The Motley Fool holds positions and recommends Affirm Holdings, Amazon, Goldman Sachs and Mastercard. The Motley Fool has a disclosure policy.