RJ Hamster
A Government ‘Fix’ Could Turn This Industry Upside Down
A Government ‘Fix’ Could Turn This Industry Upside Down
By Ethan Goldman, junior analyst, Chaikin AnalyticsIt’s no secret that interest rates on credit cards can get steep…
The average interest rate for credit cards stayed around 20% last year. But that was far from the worst…
Retail credit cards saw average interest rates of more than 30%. That’s the second highest for store cards since 2008.
Of course, this makes retail credit cards much less attractive for consumers. Customers who would normally use store cards are making a switch to other credit cards and buy now, pay later loans.
The good news is that delinquency rates for consumer cards are still historically low. Meanwhile, we’re hearing more talk from politicians about doing something for folks struggling with credit-card debt…
As you’ve likely heard by now, President Donald Trump says he wants a limit on credit-card rates. On January 9, in a post on his Truth Social platform, he called for a one-year cap of 10%.
As you can imagine, credit-card companies weren’t too thrilled to hear this news. Interest payments are a major source of income for these businesses.
A day after Trump’s announcement, the American Financial Services Association (“AFSA”) published a letter saying that these caps may just make things worse.
Folks, we don’t know how this is going to play out. As you know, Trump often makes big calls like this that gain a ton of attention. But the end result doesn’t always turn out as he might initially suggest.
Either way, it’s a warning sign for credit-card companies if the government is angling to hit their income streams…Recommended Links:
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These Credit Giants Depend on Interest
As I said, interest payments are a major source of income for these businesses.
Financial giants like American Express (AXP), Capital One Financial (COF), and Mastercard (MA) would all be at risk of taking big hits to revenue.
For example, Capital One grew its net interest income from roughly $8 billion in the third quarter of 2024 to $12 billion in the third quarter of last year alone. That’s a massive jump of more than 50%.
That figure accounted for about 80% of Capital One’s total net revenue for the quarter.
Meanwhile, American Express grew its third-quarter net interest income by about 12% year over year. This figure came in at roughly $4.5 billion for the quarter.
Folks, it’s clear these credit-card companies are raking in plenty of cash from interest payments. So a government-mandated rate cap on interest rates for credit cards would be a big deal for these businesses.
But new research from the New York Federal Reserve shows that these interest-rate caps have unintended consequences…
The New York Fed found that limits reduced credit availability by nearly 17%. And the number of accounts declined by 20%.
Sadly, delinquency rates stayed the same.
Folks, I’m not going to debate the effectiveness of interest-rate caps. And as I said, we don’t know how the calls for these caps will ultimately play out.
But for now, it’s creating a bit of a storm over the credit-card industry. And we can see the headache playing out in the Power Gauge…
The Power Gauge Shifted Its Ratings on Credit-Card Companies
In just a week after Trump’s announcement, shares of all three companies that I mentioned earlier slid.
American Express and Mastercard each fell by more than 6%. Capital One lost more than 7% during that same time.
The Power Gauge saw this in real time. On January 12, our system downgraded both American Express and Capital One from “bullish” to “neutral+.”
To be clear, I’m obviously not saying credit-card companies are doomed. We don’t know what will ultimately happen with an interest-rate cap. Trump could also change his tune.
But a potential interest-rate cap is clearly a big deal for major credit-card companies. Investors wouldn’t like to see these companies’ interest income get slashed.
For now, American Express gets a “neutral” rating in the Power Gauge. Capital One edged back into “bullish” territory. And Mastercard is struggling with a “bearish” rating.
Again, we’ll have to see how it all ends up with a government “fix” with an interest-rate cap. It could mean a big shakeup for the credit-card industry.
And as always, I’ll take my cues from the Power Gauge when it comes to stocks in the space.
Good investing,
Ethan Goldman
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Market View
Major Indexes and Notable Sectors # HLD: BULLISH NEUTRAL BEARISH
Dow 30
-0.21%518 7S&P 500
-0.08%115275 110Nasdaq
-0.08%2254 30
Small Caps
+0.09%668967 258Bonds
-0.58%Real Estate
+1.22%117 13
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are Bullish. Major indexes are mixed.* * * *
Sector Tracker
Sector movement over the last 5 daysReal Estate+4.22%Consumer Staples+3.61%Industrials+3.07%Energy+2.19%Utilities+2.07%Materials+0.87%Information Technology-0.36%Health Care-1.0%Consumer Discretionary-1.7%Financial-2.31%Communication-2.32%* * * *
Industry Focus
Retail Services184415
Over the past 6 months, the Retail subsector (XRT) has outperformed the S&P 500 by +3.53%. Its Power Bar ratio, which measures future potential, is Strong, with more Bullish than Bearish stocks. It is currently ranked #16 of 21subsectors and has moved up 2 slots over the past week.Top Stocks
ABGAsbury Automotive GrDDSDillard’s, Inc.MMacy’s, Inc.* * * *
Top Movers
Gainers
SMCI+10.94%MU+7.76%MRNA+6.28%
GEV+6.12%
Q+4.44%LosersCEG-9.82%VST-7.54%
AMCR-7.29%
WST-7.02%APP-6.3%* * * *
Earnings Report
Earnings SurprisesPNC
The PNC Financial Services Group, Inc. Q4 $4.88 Beat by $0.65RF
Regions Financial Corporation Q4 $0.57 Missed by $-0.04STT
State Street Corporation Q4 $2.97 Beat by $0.13MTB
M&T Bank Corporation Q4 $4.67 Beat by $0.20* * * *
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