Visa (NYSE: V) and other credit card companies saw their stocks slide on news that President Trump was pushing a 10% interest cap.
V – Daily Chart
Visa shares (V) plunged from around $350 to $327.88 on the news, and support at $317 is the only near-term obstacle to a test of $300.
U.S. financial stocks and UK-listed lenders were lower on Monday after Trump’s call for a one-year cap on credit card rates. The move threatens a key revenue stream for the industry.
However, Wall Street analysts did not expect a swift move to implement the cap, noting that such a measure would require Congressional approval.
“It would take an Act of Congress for such rate caps to be in place, given the overwhelming legal challenges an executive order would likely face,” analysts at UBS Global wrote.
Analysts also said the move could backfire, as lenders would be forced to reduce card limits or close accounts for borrowers with lower credit scores.
“This rate cap would not address the root of the problem and could push consumers towards more expensive debt… such as pawn shops and other non-bank consumer lenders,” J.P. Morgan analyst Vivek Juneja wrote.
Visa and Mastercard were both hard hit, with drops of 7% and 4%, respectively, and lost half of Visa’s gains over the last year. The company’s valuation of around 34x price-to-earnings was in line with the 5-year average, and upside was limited ahead of the news.
Q4 earnings season is underway this week, with bank earnings, and Bloomberg Intelligence expects S&P earnings growth to climb 8.4% for Q4. The gain is expected to be small for the so-called Magnificent Seven big tech stocks, with Q4 earnings projected to increase by 4.6%.
The markets are now pricing the odds of only 3% for a 25 basis point rate cut at the FOMC’s next meeting on January 27-28.
