Signals

Signals: can public fintechs outperform the market?

The TWIF Index is a price-weighted index of 15 publicly-traded fintech companies: Visa, Mastercard, American Express, Block, PayPal, Fiserv, FIS, Global Payments, Adyen, Shopify, Nubank, Coinbase, Robinhood, FICO and Experian.

Hello, Fintech Friends!

"That escalated quickly" is probably the best summary of what happened in the stock market in July. On July 11, the U.S. Labor Department reported a month-over-month decline in the Consumer Price Index (CPI), resulting in an annual inflation rate of 3%. The inflation results have intensified the debate about the Federal Reserve keeping interest rates too high for too long, potentially causing a recession.

Nevertheless, the Federal Reserve kept the fed funds rate unchanged at its two-day meeting on July 30-31. The Fed signaled that the rate cuts are coming, but...the July jobs report, published on August 2, showed that the U.S. unemployment rate spiked to 4.3%, the highest level since October 2021. The markets dropped sharply following the report, as investors realized that the rate cuts might come too late for the Fed to achieve a "soft landing".

What's interesting is that the TWIF Index, which represents the performance of the largest fintech companies, held up better than the Nasdaq Composite and the S&P 500. Thus, as of August 2, the TWIF Index was up 18.9% YTD, compared to +11.8% and +12.1% for the Nasdaq Composite and the S&P 500 respectively.

The TWIF Index was helped by the strong Q2 2024 earnings reports from Mastercard, Fiserv, and PayPal (more on that below), as well as an okeish report from Visa. An economic recession will hurt fintech companies too. However, the key question is: can the fintech companies outperform the market if a recession comes?

Best-Performing Fintech Stocks

Dave (NASDAQ: DAVE) continues to top the list of the best-performing fintech stocks (+297% YTD), and so far seems unmoved by the recession concerns and the new CFPB rule that might impact its core business.

We added several new names to the list, including Buy Now Pay Day lenders Sezzle 🇺🇸 (NASDAQ: SEZL) and Zip 🇦🇺 (ASX: ZIP), as well as a financial services marketplace Kaspi 🇰🇿 ( NASDAQ: KSPI). 4 of 10 fintechs in the list are non-U.S. companies.