Rates Among Credit Card Companies Surge as Consumer Spending Weakens Insights on AI, Industrial Stocks and Airbus

Consumer Payment trends, rise in delinquency rates among certain credit card companies is a cause for concern. While the overall delinquency rates declined slightly from April to May, it is important to note that they exceeded the pre-pandemic levels for Capital One Financial, Discover Financial, and Bread Financial. This suggests that some consumers are facing challenges in meeting their credit card payment obligations.

Here is a breakdown of the delinquency rates and charge-off rates for these companies:

• Capital One (COF):

  • Delinquency: 3.64% in May, 3.57% in April, and 3.66% in March.
  • Charge-off: 4.50% in May, 4.26% in April, and 4.16% in March.
  • May 2019 rate: Delinquency at 3.29% and Charge-off at 4.89%.
  • Change in basis points: Delinquency increased by 35 bps, while Charge-off decreased by 39 bps compared to May 2019.
    
    

• Discover Financial (DFS):

  • Delinquency: 2.77% in May, 2.75% in April, and 2.76% in March.
  • Charge-off: 3.67% in May, 3.56% in April, and 3.13% in March.
  • May 2019 rate: Delinquency at 2.33% and Charge-off at 3.48%.
  • Change in basis points: Delinquency increased by 44 bps, while Charge-off increased by 19 bps compared to May 2019.
    
    

• Bread Financial (BFH):

  • Delinquency: 5.50% in May, 5.50% in April, and 5.70% in March.
  • Charge-off: 8.40% in May, 7.80% in April, and 6.70% in March.
  • May 2019 rate: Delinquency at 5.00% and Charge-off at 6.40%.
  • Change in basis points: Delinquency increased by 50 bps, while Charge-off increased by 200 bps compared to May 2019.

Wolfe Research analyst Bill Carcache's observation that it is time to retire the term 'normalization' highlights the evolving dynamics in the credit card industry. Typically, delinquency rates decline in May due to tax rebates, but this year, they increased. Carcache predicts that delinquency rates will continue to rise in the coming months and then accelerate further later in the year. This shift indicates a transition from a period of normalization to potential degradation in credit quality.

One factor contributing to the anticipated rise in delinquency rates is the depletion of excess savings among consumers. Throughout the pandemic, many individuals and households built up substantial savings due to reduced spending opportunities. However, Fitch Ratings estimates that the cumulative stock of excess savings has already fallen by 60% from its peak. As these savings are depleted, consumer spending is expected to weaken, particularly in the second half of 2023. This could have implications for economic growth and credit quality.

Turning to the topic of artificial intelligence (AI), the transformative potential of this technology is becoming increasingly evident across industries. Wedbush Securities analyst Dan Ives highlights the significant opportunity for the tech sector, valuing it at $800 billion over the next decade. The accelerated monetization of AI, as demonstrated by Nvidia's recent guidance, further supports the bullish outlook.

Nvidia and Microsoft are among the companies at the forefront of the AI revolution. Nvidia's success is driven by the adoption of its accelerator GPUs for large language model training, while Microsoft's partnership with OpenAI has allowed for the integration of AI across its product offerings. Both companies have seen their stock prices surge this year, with Nvidia rising nearly 200% and Microsoft up 40%.

However, it's not just Nvidia and Microsoft that stand to benefit from the AI craze. Other tech giants like Apple, Amazon, Oracle, Google, and Meta Platforms are expected to leverage AI technology to drive growth in their respective domains. Furthermore, smaller tech companies such as MongoDB, Snowflake, C3.ai, Palantir Technologies, and Salesforce are also poised to benefit from the broader AI arms race.

While the potential for AI is significant, it is important to acknowledge the uncertainties and risks associated with its widespread adoption. The long-term impact on society and the workforce remains uncertain, and ethical considerations surrounding AI implementation must be addressed. However, experts generally believe that the benefits of AI will outweigh the potential drawbacks, making it a promising area for investment and technological advancement.

Moving on to the industrial sector, the performance of industrial stocks has shown resilience in recent weeks. The Industrial Select Sector and the SPDR S&P 500 Trust ETF have both experienced gains, although they underperformed the broader market. This indicates a mixed trend within the sector.

Within the industrial sector, certain companies have shown significant stock gains. Symbotic, a robotics warehouse automation company, has seen notable surges in its stock price. Eve, an electric air taxi developer, has also experienced significant gains. These companies exemplify the potential for disruptive technologies to drive growth in the industrial sector.

Additionally, Eneti, a maritime transportation company, saw its stock price rise after announcing a business combination deal with Cadeler A/S. This merger is expected to create synergies and drive growth in the merged entity.

Conversely, Verastem Oncology and SoFi Technologies faced stock declines due to factors such as equity funding and downgrades from analysts. These instances serve as reminders of the volatility and risks associated with investing in certain sectors.

In the financial sector, the performance of individual companies varied. Nasdaq faced a decline in its stock price after announcing the acquisition of financial software firm Adenza. On the other hand, Argentine banks, including Grupo Financiero Galicia, Banco Macro SA, and Banco BBVA Argentina, saw stock gains despite the weakening Argentine peso.

Finally, the aerospace industry has received attention, with RBC Capital Markets initiating coverage on Airbus. The analysts' Sector Perform rating reflects concerns over ongoing supply-chain constraints that may limit Airbus's delivery of new jets. The upcoming International Paris Air Show is expected to generate interest and potential orders for both Airbus and Boeing.

In summary, these recent developments highlight the dynamic nature of various sectors and provide insights into investment opportunities. From consumer payment trends to the AI revolution and industrial and aerospace sectors, investors must carefully analyze the specific factors influencing each industry to make informed decisions.