Credit card delinquencies are a key indicator to monitor in tough economic periods. Experts and analysts have pointed to rising rates in 2023. Should investors be worried about an imminent recession? Let’s jump in.
The 2007-2008 financial crisis led to the Great Recession, which was the worst global downturn since the Great Depression. Credit card delinquency rates from 2007 to 2009 reached all-time highs during that global financial crisis. Now, rates of credit card delinquencies are starting to challenge those record highs. This is a troubling indicator as consumers are squeezed due to the most aggressive interest rate tightening policy since the early 2000s.
New data shows that delinquencies that are 30+ days overdue and 90+ days overdue have both increased in recent months. This supports the belief among many investors and analysts that the United States Federal Reserve has reached the peak of its interest rate tightening cycle. Many expect a move downward in interest rates by the middle of 2024.
Credit card delinquency rates will be worth monitoring as the odds of a recession remain high in the current environment. Moreover, investors might want to watch the stock prices of the top two credit card companies.
VISA (NYSE:V) is the largest credit card company in the U.S. and around the world. The company raked in monster profits over the course of the 2010s as historically low interest rates led to increased borrowing from consumers. Shares of VISA have climbed 20% in 2023 as of close on November 17. Mastercard (NYSE:MA) is the second-largest credit card company. Its shares have climbed 15% in the year-to-date period.