American Express Faces Market Volatility Amid Economic Concerns

Question: How would you respond if you held American Express Stock (NYSE: AXP) and its value dropped by 50% or more in the upcoming months? Though it may seem drastic, this scenario has occurred in the past and could happen again. American Express Stock has underperformed this year, declining by 7% since early January, while the S&P 500 has only fallen by 3% during the same period. Despite reporting better-than-expected Q4 2024 results due to increased payment volume and higher fee-related revenues, several challenges loom ahead. Market sentiment remains negative, particularly with rising fears of a U.S. recession tied to tariffs imposed by President Donald Trump on major trading partners. This situation could heavily influence American Express, whose business largely depends on consumer spending and international travel activity.

Here’s the key point: The main takeaway is that during economic downturns, American Express Stock may face substantial losses. Historical data from 2020 indicates that AXP Stock lost approximately 50% of its value within a few quarters, while it also saw a peak-to-trough decline of about 32% during the inflation shock of 2022, trailing behind the S&P 500. This raises the question: Could the Stock drop to $135 from its current $270 if similar circumstances arise? Given that individual stocks typically exhibit higher volatility than diversified portfolios, those seeking growth with less fluctuation might explore the High-Quality portfolio, which has outperformed the S&P 500, delivering returns of over 91% since its inception.

Why Is This Important Now?

President Donald Trump’s tariff policies—including a 20% tariff on Chinese imports and 25% on imports from Canada and Mexico—have heightened fears regarding potential inflation. These developments raise concerns that the U.S. economy could face significant challenges, potentially leading to a recession, as discussed in our macroeconomic analysis here. Earlier this month, the President did not rule out the possibility that these new tariffs might result in a recession. Considering the distinct uncertainty stemming from the Trump administration’s policies, these risks grow increasingly pertinent. Furthermore, global factors such as the ongoing Ukraine–Russia conflict and trade tensions complicate the economic landscape. Higher tariffs increase import costs, resulting in elevated prices, reduced disposable income, and decreased consumer spending.

This situation could affect American Express in several ways. Increased prices may force consumers to limit discretionary spending, which could reduce transaction volumes on the company’s network. In the event of a recession, job losses and lower incomes could additionally weaken spending and payment volumes. Businesses facing rising costs might tighten budgets, leading to reduced corporate spending and fewer business-related transactions. American Express is more closely tied to the travel and entertainment sectors than its competitors, making it susceptible to a sharper downturn during economic contraction. Recent growth for the company has largely stemmed from increased spending in these categories by millennials and Gen Z. During the holiday quarter, travel and entertainment billings grew 11%, surpassing the 8% growth in goods and services.

How Resilient is AXP Stock in Downturns?

Historically, AXP Stock has underperformed the S&P 500 during certain downturns. Concerned about potential impacts from a market crash on AXP Stock? Our dashboard “How Low Can American Express Stock Go In A Market Crash?” provides a detailed analysis of past market crashes and their effects on the Stock.

Inflation Shock (2022)

• AXP Stock dropped 32.0% from a high of $198.38 on February 16, 2022, to $134.91 on October 2, 2022, compared to a peak-to-trough drop of 25.4% for the S&P 500.
• The Stock fully recovered to its pre-crisis peak by January 26, 2024.
• Since then, the Stock has reached a high of $325.87 on January 23, 2025, and is currently around $270.

COVID-19 Pandemic (2020)

• AXP Stock fell 49.6% from a high of $136.93 on February 19, 2020, to $68.96 on March 23, 2020, versus a peak-to-trough decline of 33.9% for the S&P 500.
• The Stock fully recovered to its pre-Crisis peak by February 23, 2021.

Global Financial Crisis (2008)

• AXP Stock plummeted 83.8% from a high of $63.23 on October 14, 2007, to $10.26 on March 8, 2009, against a peak-to-trough decline of 56.8% for the S&P 500.
• The Stock fully recovered to its pre-Crisis peak by March 5, 2013.

Valuation

Currently, AXP trades at around $270 per share, with a valuation of approximately 18 times consensus 2025 earnings, which appears to be a reasonable valuation. Although revenue growth is positive, it is not particularly strong, with consensus estimates projecting about 8% growth for FY’25 and FY’26. While the company’s affluent customer base typically withstands economic downturns better than other card providers, the substantial reliance on discretionary spending categories like travel and entertainment presents a clear risk in a downturn. Notably, marketing expenditures surged by 16% in 2024 to approximately $6 billion. If this trend persists during an economic downturn, margins could be pressured.

In light of the potential growth slowdown and wider economic uncertainties, consider this question: Will you retain your AXP Stock, or panic and sell if it drops to $135 or lower? Holding onto a declining Stock is challenging. Trefis collaborates with Empirical Asset Management, a Boston-based wealth manager whose strategies yielded positive returns during the 2008-09 period when the S&P fell over 40%. Empirical has integrated the Trefis HQ Portfolio into its asset allocation, providing clients better risk-adjusted returns than the benchmark index—demonstrating a less turbulent ride, supported by HQ Portfolio performance metrics.

[1] Returns as of 3/27/2025
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.