Why Upstart Was Down Today
Shares of Upstart Holdings (NASDAQ: UPST) were down sharply on Wednesday, dropping 6.7% to end the day at $33.09. In the afternoon trading session it dropped as low as $32.69. The stock price is down about 78% year to date.
There appears to be no catalyst specific to the company for today's decline, but the fintech has been hampered by a range of issues in recent days.
So what
Upstart deploys artificial intelligence (AI) to handle loan requests, while also lending out its platform to banks and credit unions. The share price likely took a hit, in part, today on the news that global oil prices had dipped below $100 per barrel for the first time since April. This may have sparked concerns about a recession as oil prices often correlate with the gross domestic product (GDP). When demand slows, the economy often follows.
As a fintech that makes loans and serves the banking industry, Upstart would be negatively impacted by a recession or economic downturn.
Upstart has other issues as well. On June 8, the Consumer Financial Protection Bureau (CFPB) terminated Upstart's no-action letter, which grants certain regulatory waivers. It was done at Upstart's request. Analysts say this could reduce revenue in the near term.
On June 29, Morgan Stanley (NYSE: MS) downgraded Upstart to underweight from equal weight. The company is also facing a class action suit from investors over claims about its technology's ability to assess credit risk.
Now what
While today's news about oil prices dropping seems to have roiled the markets, it doesn't mean a recession is imminent -- it just represents the short-term reaction of the market to some macroeconomic news.
But obviously, the direction of GDP and the economy is a huge issue for Upstart, so keep an eye on these types of economic indicators, as well as the effects of the Federal Reserve's rate hikes.
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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart Holdings, Inc. The Motley Fool has a disclosure policy.
