What happened
Fintech stock SoFi Technologies (SOFI +1.20%) rose roughly 4.9% today, as of 3:36 p.m. EDT, greatly outpacing the market's gains.
SoFi is one of the more controversial and interesting stocks in the fintech world. It's run by a highly regarded executive in Anthony Noto. And it tends to target borrowers who attend graduate school, with a high likelihood of making high incomes during their lifetimes.
However, the company is still losing a fair amount on its bottom line on a generally accepted accounting principles (GAAP) basis. So it's been crushed this year as higher interest rates led to a repricing of growth stocks, then fears over a potential recession hit all financial and fintech stocks.
But SoFi is experiencing something of a relief rally today, following a few weeks of seemingly endless declines.
So what
This (Thursday) morning, the U.S. got some good macroeconomic news. Continuing unemployment claims came in lower than expected, which means the labor market appears somewhat resilient even in the face of a very hawkish Federal Reserve.
In late August, Fed Chair Jay Powell gave a speech at a Federal Reserve symposium in Jackson Hole, Wyoming. He declared the Fed will be steadfast in its mission to bring inflation down, even if it means "some pain" for the economy. In the wake of that speech, economically sensitive stocks such as financials and fintechs had a severe decline after rising in July.
Today, Jay Powell gave his only public interview since Jackson Hole, reiterating the Fed's mission to bring inflation down. However, he also noted that since the labor market remains strong and inflation hasn't been entrenched for a decade as it was in the early 1980s, the Fed could bring inflation down without the "severe social costs" seen in that former time period.
Lenders like SoFi would actually benefit from higher interest rates, as they lead to higher net interest income -- as long as those higher rates don't put the economy into recession, which could cause borrowers to default on their loans. Given how cheap SoFi's stock had become (it trades at a price-to-book-value ratio of around 1), SoFi bounced hard on hopes of avoiding such a downturn.
Now what
If the Fed manages to get inflation down toward its 2% goal without causing a bad recession, stocks such as SoFi could take off, given that high-growth fintechs have been some of the most beaten-down stocks in the entire market.
Some observers remain highly skeptical that the Fed can accomplish this so-called "soft landing," and we're by no means out of the woods until it actually happens. Investors will learn more on the inflation front when the Bureau of Labor Statistics releases the latest Consumer Price Index (CPI) data for August on Sept. 13.
