If I had to pick a select few companies that I believe in, PayPal (NASDAQ:PYPL) would be on the list. In fact, in many ways, PayPal stock sells itself.
It doesn’t take a finance wizard to understand that despite some encouraging tailwinds, there are an awful lot of negative factors that pose challenges to the broader upside narrative.
However, my “flagship” InvestorPlace colleagues like Matt McCall and Louis Navellier are confident about the future.
Primarily, three major catalysts come to mind: The burgeoning gig economy, far greater interest in cashless transactions, and opportunities to reach the unbanked and underbanked.
Although I’m not a shareholder of PayPal stock, I do love its underlying business. Indeed, I’ve been working the gig economy before it was even called that. When prodded by my friends, my explanation was “some stuff” I did on the side. Frankly, gig economy is a much sexier name.
Particularly, the “paperwork” is all handled automatically so I can focus on what I love to do rather than deal with administrative stuff, which is something I loathe. Further, other important items (like invoicing) are a cinch. Just input the necessary data and voila! Assuming your client is on the up and up, you’ll soon get paid.
The cashless movement was gaining momentum well before the pandemic. With connectivity apps and smartphones, it’s just easier to carry one device to handle all your needs. Now, with the pandemic, people don’t want to touch dirty cash, and many businesses have transitioned online anyway, which naturally benefits PayPal stock.
The share of American households who are unbanked will likely rise. Yes, this figure has been declining since the end of the Great Recession. However, we have another crisis on our hands which has disproportionately impacted vulnerable communities.
Through digital payment services such as PYPL, these community members have access to financial tools, which is an increasing necessity these days. Thus, PayPal stock has a feel-good storyline associated with it, a relevant consideration for modern investors.
PayPal Stock and Economic Challenges
Having said all that, PayPal stock is not invincible. Since closing at a peak of $252 in January, shares dropped down to $234 to close out the month, a 7% loss.
We have a few possible culprits for the volatility. For one, speculative investors – such as yours truly – have piled into red-hot companies like GameStop (NYSE:GME). While I don’t believe that GME is suddenly a benchmark for the broader markets, when retail investors focus their funds on specific names, that leaves less attention for everybody else.
And frankly, GME is something where you can make double your money in one day (although you can lose it too, just be aware). More than likely, you’re not going to do that with PayPal stock. Further, with general anxiety about societal stability – especially Washington gridlock regarding stimulus checks – many investors are hesitant.
But perhaps the most significant headwind is that recent red ink on Wall Street may finally impede a delicate labor market recovery. First, it’s interesting to note that a broadening wedge formation has developed in the benchmark SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
According to Investopedia, “Broadening formations are generally bearish for most long-term investors … since they are characterized by rising volatility without a clear move in a single direction.”
In other words, it’s not something to ignore.
Which is why I’m very concerned about the labor market and its implications not just for PayPal stock but for all stocks. It’s not as clear cut as the SPY chart but the employment level in the U.S. features similar ominous dynamics.
Please note that in the broadening wedge, there are three distinct peak-valley transitions. On the third and final sequence, the volatility is the sharpest. Following the bottom, the asset or index attempts to recover quickly but it turns out to be a dead-cat bounce.
From there, we go to the eight-ball, pure volatility.
Take It With a Grain of Salt
Of course, the art of chart reading is that it is just that, an art. It’s interpretive and my interpretation could be way off the radar. For the sake of all of us, I hope I’m dead wrong.
But man, what an eerie coincidence! If I didn’t know any better, it almost seems as if the pandemic – or some other disruptive event – was destined to happen.
Please don’t interpret this as a fear-mongering tactic. Since my brand revolves around capital markets, I don’t gain from their destruction. In reality, I’m just trying to make sense of this mess like you are and happened to come across a possible sign that not all may be well with our economy.
I can see McCall and Navellier rolling their eyes already. That’s fine. I just want to bring you information that may help catapult your own additional research.
Fundamentally, I still believe in the long-term narrative of PayPal stock. But if you haven’t gone all-in yet, you may want to keep the powder keg dry as a discounted buy opportunity could be right around the corner.
On the date of publication, Josh Enomoto held a long position in GME.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.