Shares of Upstart (UPST 9.95%) moved 10% higher today alongside a broader trend in the stock market as stocks that are sensitive to interest rates got a boost. One of the catalysts appeared to be Donald Trump's progress in the race for the Republican nomination for president after rival Ron DeSantis dropped out of the race over the weekend.
Trump favors low interest rates, and investors seemed to increase their bets that interest rates would fall as stocks like Affirm Holdings, Carvana, and SoFi Technologies all gained sharply, and the small-cap Russell 2000 index significantly outperformed the broad market. The yield on the 10-year Treasury note also eased down 1.25% to 4.09%.
Interest rates are a double-edged sword for Upstart
The thinking behind Upstart's gains today seems to be that as a possible second Trump presidency grows more likely, lower interest rates are also more likely, which are generally good for stocks.
Arguably more than any other company, Upstart stock has moved at the whim of interest rate bets for the last few months as the AI-focused consumer-lending company is especially sensitive to interest rates.
Upstart was growing rapidly in 2021 when interest rates were near zero and the company was solidly profitable then. In the high-interest-rate era more recently, revenue growth has turned negative, and it's losing money as demand for its loans has dried up, and its banking partners have been less interested in taking on its loans.
Can Upstart keep climbing?
The Federal Reserve forecasts three interest rate cuts this year but hopes that those cuts will come as soon as March have cooled off, and Upstart stock has fallen as a result.
Beyond speculation about interest rates, Upstart has improved its business and cut costs, but expectations of a recovery may still be premature. However, lower interest rates are likely to encourage more borrowing, which would benefit Upstart. The company, which is competing with conventional credit scores, still has a promising opportunity in front of it, but the fintech stock will need some help from interest rates and the lending market in order to get there.
