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Why Are Affirm, Upstart, and SoFi Plunging on Monday?

What happened

The stock market was having yet another bad day on Monday, with all three major market indexes well in the red, and the S&P 500 down by nearly 2% at 11 a.m. ET.

However, several fast-growing companies in the financial technology, or fintech, space were under pressure and were dramatically underperforming the market. Buy now, pay later (BNPL) leader Affirm (NASDAQ: AFRM) was down by 11%, lending technology company Upstart Holdings (NASDAQ: UPST) had fallen by nearly 14%, and banking disruptor SoFi Technologies (NASDAQ: SOFI) had plunged by 12% for the day.

Image source: Getty Images.

So what

First, the good news. There isn't any company-specific news causing today's downward movements in any of these three fintech stocks. The recent market decline has hit speculative growth companies especially hard, as investors have general fears about inflation and rising rates as we go forward in 2022.

However, the declines aren't completely unwarranted. Rising interest rates and inflation would certainly impact these businesses in several ways. For one thing, rising rates often cause a pullback in consumer spending, which could cause lending volume declines for all three companies. And with inflation making everyday purchases more expensive for consumers and government stimulus largely running out (such as the higher child tax credit payments in 2021), there are legitimate worries that default rates could rise.

None of these three companies has reported fourth-quarter earnings yet, and all had very strong numbers in the third quarter of 2021. However, any impacts to the consumer would likely not be apparent until 2022 numbers are available, so there is some uncertainly weighing on these stocks right now.

Now what

It's worth noting that today's move is just the latest in a multi-month decline for speculative growth stocks. Affirm is now down by 70% from its all-time high reached just a couple months ago, SoFi has fallen by more than 50% from its peak, and Upstart has lost nearly 80% from its October 2021 high.

However, these prices could end up being a solid long-term buying opportunity, once the dust settles. All three companies have major catalysts that could be big tailwinds to their business. Affirm has entered into several high-potential partnerships, including with Amazon and Target. SoFi just recently got approval for a bank charter, which creates a world of interesting possibilities for the banking disruptor. And Upstart is just ramping up its move into the $600-PLUS billion auto lending market.

The bottom line is that while nobody likes to watch their portfolio's value decline, nothing has changed the fact that these are three high-potential businesses with massive market opportunities. While it would be wise to expect volatility to continue for some time, now could be a smart time for patient long-term investors to take a closer look.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matthew Frankel, CFP® owns SoFi Technologies, Inc. The Motley Fool owns and recommends Affirm Holdings, Inc., Amazon, and Upstart Holdings, Inc. The Motley Fool has a disclosure policy.


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