There will be no soft landing for SOFI stocks
Sofi Technologies (NASDAQ:SOFI) the stock was a disappointment for investors. From the start, the neo-banking firm was supposed to disrupt the American financial sector. However, this vision did not become reality in the 2020s. SOFI’s long-term shareholders are still struggling to break even.
The central bank’s restrictive monetary policy will certainly not make things easier for SoFi Technologies. In addition, any bullish assumption based on President Joseph Biden’s Student Debt Relief Plan may end in disappointment.
Some people imagined that SoFi Technologies would give traditional banks a hard time. They may have invested in the hope of multi-bagger returns. With SoFi offering personal loans, mortgages, brokerage services and more, the company would surely take significant market share from conventional lenders. Right?
This narrative did not necessarily play out as some investors had hoped. Many American lending institutions are struggling in 2022, and the hawkish Federal Reserve is certainly not helping SoFi Technologies.
Moreover, investors should not rely on the current administration’s student loan policies to save SoFi.
Student loan pause didn’t help SOFI stock
SOFI stock already went through its hype phase at the end of 2021, when it hit close to $23. Lately it’s been floundering around $6. The bulls better hope it doesn’t fall below $5 and enter what some would call penny stock territory.
Although SoFi Technologies offers mortgages and other types of loans, let’s face it. SoFi’s bread and butter has been student loans, and the company will likely continue to depend on this type of loan as a major source of revenue.
SoFi student loan income was not enough to make the company profitable in its last reported trimester. Nevertheless, a proclamation from the White House gave some investors hope.
As you may know, the Biden administration wrote off $10,000 to $20,000 in student loan debt per borrower, while extending the pause on student loan debt payments “one last time until 31 December 2022, with payments resuming in January 2023”.
Markets are efficient and forward-looking. All this has been integrated into the SOFI share price. Still, that wasn’t enough to bring the stock price down to $8 or $10, let alone last year’s all-time high.
Fed policy is an obstacle for SoFi Technologies
The seemingly huge student loan pause announcement was meant to be a big catalyst for SoFi, but it failed to move the needle. Meanwhile, society will have to deal with the same problems that the big banks face, namely the Federal Reserve’s aggressive monetary policy.
The big banks will at least have ample capital reserves to help them weather a Fed-induced economic slowdown. On the other hand, SoFi Technologies should struggle as it is not a big company. Keep in mind that SoFi’s market capitalization is less than $5 billion.
As you probably know, the Federal Reserve has raised the federal funds rate several times this year. These are aggressive rate hikes of 50 and even 75 basis points.
First, higher interest rates generally mean more downward pressure on growth stock valuations. So expect traders to avoid SOFI stocks in this tight monetary policy environment.
Second, when the Fed repeatedly raises interest rates, it inhibits lending and borrowing activity. This, of course, is problematic for SoFi Technologies. In other words, you’re essentially “fighting the Fed” if you invest in SoFi now.
What you can do now
The giant traditional banks should be able to withstand aggressively hawkish monetary policy. We can’t say the same of SoFi Technologies with confidence. The company is likely to experience difficulties, as are its shareholders.
SOFI stock has already lost much of its value since the end of 2021. There is no need to stay in the trade if you are rightly worried about losing more money. So, feel free to find another fintech company to bet your hard-earned capital on.
As of the date of publication, neither Louis Navellier nor the member of the InvestorPlace research staff principally responsible for this article holds (directly or indirectly) any position in the securities mentioned in this article.