Shares of American Express (NYSE: AXP) traded approximately 4% higher as of 1:30 p.m. ET today, according to data from S&P Global Market Intelligence, as the market tried to claw back some of the losses incurred last week when the broader benchmark S&P 500 fell 1.7% and suffered its worst week since March of 2023. While there was no specific news about the company today, there are a few reasons to explain the movement.
As a company operating in the lending and credit card space, American Express is a cyclical stock that’s going to be impacted by trends in the economy. Last week, economic data hinted that the economy might be deteriorating more quickly than expected, calling into question a soft-landing scenario.
The U.S. economy also added fewer jobs than expected in August. Unemployment remained steady, but fears of a weaker labor market are going to impact a credit card company that underwrites loans and credit that’s heavily based on monthly income.
Still, I think the market was likely oversold last week, and American Express saw its stock fall around 5.6%. Given that American Express fell significantly last week, it was more likely to participate in the recovery today.
Additionally, Citigroup’s CFO Mark Mason said at an industry conference this morning that he still foresees a soft-landing scenario as interest rates come down. Citigroup is a major bank and credit card lender, so it’s good for the industry to see a major C-suite executive reaffirm positive sentiment.
American Express has been a great stock to hold for decades and is now the second-largest position in Berkshire Hathaway’s massive equities portfolio. Warren Buffett himself has called the brand “special.”
The other good thing about the company is that it caters largely to higher-income customers, who tend to be more resilient during a recession. American Express also has a large payments business that gives it good revenue diversity.
The company’s stock currently trades for 19x forward earnings, so there may be cheaper entry points in the future. However, the company continues to be a great long-term buy-and-hold stock.
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Bram Berkowitz has a position in Citigroup. The Motley Fool has a disclosure policy.
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