SoFi Technologies (NASDAQ: SOFI) stock gained 14% in July, according to data provided by S&P Global Market Intelligence. The stock soared after the Federal Reserve indicated that it might cut interest rates in September. However, it's fallen again since reporting earnings at the end of the month.
Banks are sensitive to interest rates
It wasn't only SoFi stock that soared in July. Bank stocks, as an industry, jumped on the news that interest rates might finally come down. There have been signs of a soft landing, with inflation rates falling, and the Federal Reserve said it thinks it can begin to cut interest rates in September.
That's good news for banks, which are acutely susceptible to interest rates because they lend and invest money. They benefit from higher rates because they make more money on the money they invest, but in general, interest-rates hikes aren't beneficial because the banks pay higher rates on deposits and deal with higher default rates.
SoFi stock seems to be more sensitive to interest-rate changes than other banks. That's likely because it's a different kind of bank than the traditional large banks like JPMorgan Chase and Bank of America. It's all digital, young, and growing at a rapid pace.
The bank has only recently become profitable and trades at a much higher valuation than many of its peers. To keep that valuation, it needs to report high growth and signal that more is coming.
SoFi also needs to demonstrate that it's safe and worth taking a chance on. So when something goes wrong in the economy, its stock might take a harder hit. Conversely, when something goes right, investors will reward it.
In general, the young bank's stock movements follow interest-rate news, as well as its performance.
How is SoFi doing?
SoFi's second-quarter results, released on July 30, were largely mixed, but the stock dropped after the report. In the quarter, revenue increased 20% year over year, and net income was $45 million, topping expectations. However, growth rates have been decelerating, and the market's been expecting more from this disruptive tech stock.
The lending business is also slowing down as SoFi conservatively lends its money and tries to keep its default rate low.
On the flip side, SoFi continues to resonate with its core target market and gain clients. It added 643,000 new members in the quarter and 956,00 new products. The financial services segment has been a big hit, with revenue up 80% year over year in the quarter.
There's a lot to like about SoFi, but it could continue to be volatile as long as interest rates remain high.
Should you invest $1,000 in SoFi Technologies right now?
Before you buy stock in SoFi Technologies, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and SoFi Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $638,800!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 6, 2024
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has positions in SoFi Technologies. The Motley Fool has positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
