Why Now Is NOT the Time to Buy SOFI Stock
Investors of neo-banking firm SoFi Technologies (NASDAQ:SOFI) jumped for joy after Federal Reserve Chairman Jerome Powell hinted at a less severe interest rate hike this month. SOFI stock spiked, but the party didn’t last long. SoFi Technologies’ shareholders may suffer from a hangover soon as conditions don’t favor the company now.
It’s great to be invested in the finance and technology sectors, especially when the economy is strong — right? Not necessarily, as central bank policy hinges on economic conditions. Moreover, SoFi Technologies is particularly sensitive to interest rate hikes.
On top of that, SoFi’s investors have to worry about government policy as it pertains to student loan refinancing, which is one of the company’s core businesses. So, before you jump into a dangerous trade, consider whether the current environment actually favors a company like SoFi Technologies.
What’s Happening With SOFI Stock?
SOFI stock jumped 5% on Nov. 30 after Powell seemingly indicated that the Federal Reserve could tap the brakes on interest rate raises in December. However, the share price retraced downward during the next couple of days.
It took a little bit of time for financial traders to fully absorb the implications of Powell’s speech. He warned, “History cautions strongly against prematurely loosening policy,” and, “we have not seen clear progress on slowing inflation.”
In other words, investors shouldn’t assume that the Federal Reserve will cease hiking bond yields anytime in the near future. Powell added, “Cutting rates is not something we want to do soon,” further cementing his hawkish stance.
Then, on Dec. 2, the Labor Department released a hotter-than-anticipated November jobs report. SOFI stock fell as investors realized that a strong labor market could prompt more aggressive interest rate increases — and that’s not good news for lenders like SoFi Technologies.
Student Loan Repayment Pause Is Problematic for SoFi Technologies
As if SoFi’s shareholders didn’t have enough to worry about, the government dealt the company a blow by extending the federal student loan repayment requirement moratorium. This is a problem for SoFi Technologies, which generates revenue from student loan refinancing.
The repayment requirements had previously been scheduled to resume on Jan. 1, 2023. However, the new timeline indicates that, depending on the outcome of certain legal issues, the student loan repayment pause could extend all the way out to 60 days after June 30, 2023.
According to the New York Times, President Joe Biden’s administration asked the U.S. Supreme Court to take up the student debt forgiveness issue. Just recently, the Supreme Court agreed to take the case. Thus, this conflict could persist for a while, and that’s a major hassle for SoFi Technologies and its stakeholders.
Now Is Not the Time to Buy SOFI Stock
SOFI stock has been in a state of decline all year long. Does this make it a good value? Not if the company is dealing with challenges presented by the nation’s government and central bank.
There may be a better time, possibly in a few months, to invest in SoFi Technologies. For now, though, it’s wise to stay on the sidelines as an investor, even if you like SoFi and feel that it has a great long-term outlook.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
