Will debt ceiling breakthrough be beneficial for SOFI?

The debt ceiling and interest rate hikes are the two major concerns in the market at the beginning of June. The debt ceiling bill has already been passed by both houses of Congress, while the implied probability of no interest rate hike in June has risen to 75%. Many Federal Reserve officials, including the President of the Federal Reserve Bank of Philadelphia, have called for skipping the rate hike.

Due to traders' increased expectations that the Federal Open Market Committee will not raise rates at its meeting on June 13-14, numerous fintech companies have seen significant gains. For example, $Upstart Holdings, Inc.(UPST)$ rose 9.2% on Thursday, $Blend Labs, Inc.(BLND)$ ose 3.1%, and $loanDepot, Inc.(LDI)$ rose 2.7%. Although this does not necessarily mean that interest rates will no longer rise, it may alleviate concerns for consumers and businesses borrowing in a high-interest-rate environment. Companies such as $SoFi Technologies Inc.(SOFI)$ and $Affirm Holdings, Inc.(AFRM)$ which are related to interest rates, have also experienced some degree of growth.

At the same time, reaching an agreement on the debt ceiling will benefit several industries' stocks, including tax preparation, student loans, defense spending, and the energy sector, including SOFI.

The proposed debt ceiling bill also ensures that student loan repayments will resume in the fall. This is a positive sign for SOFI as it could increase the demand for refinancing student loans, which is optimistic for the market.

However, let's not forget that after the cancellation of federal loan relief, the default rate on student loans is likely to rise. Considering the current high-interest, high-inflation environment, the cost of living is higher, which increases the repayment pressure for students. Although most students are unlikely to default on their loans as a bet on their personal careers, the portion of individuals most likely to default may shift from government loans to corporate loans, increasing the burden on businesses.

Furthermore, there has been an upward trend in SOFI's recent short interest ratio. The gains brought about by "short squeeze" may not necessarily be sustainable.

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