Why should I trade American Express shares?

American Express is one of the best-known credit card companies, especially among those in business circles. Its cards are heavily used by business travellers due to the excellent perks they provide for airline, hotel, and restaurant spending. While that’s hurt revenues in 2020, the company is expected to bounce back. In looking at the stock it has very good volatility and volumes, making it an excellent choice for traders interested in participating in the financial services sector. Because the company’s services are not the same as Visa or Mastercard it can often provide good trades when those two are lagging.

Is American Express the best financial services stock for trading?

With its higher volatility, its good liquidity, and its brand recognition American Express is an excellent financial services stock for traders to keep their eyes on. And like other financial services stocks it is subject to the cyclical nature of the industry that can occasionally cause steep drops in what has otherwise been a solid uptrend for decades. It may not always be the best financial services stock for trading, but it is always a good choice, and traders should be able to spot frequent opportunities for potential profits in American Express shares.

What’s the best strategy for trading American Express shares?

Since the financial crisis of 2008 American Express shares have been trending higher, yet they still have the occasional pullback due to the cyclical nature of the industry they operate in. This makes a trend following strategy work well most of the time, but traders should keep sight of developments in the financial services industry and watch for potential pullbacks during times of broad-based industry weakness. In addition, when these pullbacks do occur a breakout strategy can often be profitable if the stock chooses to consolidate near its bottom.

American Express Stock

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Headquartered in New York City, the American Express Company (commonly known as AMEX) is a global financial services company that provides charge and credit card services as well as various travel solutions. The company serves both businesses and consumers through three distinct business segments: Global Consumer Services Group, Global Commercial Services, as well as Global Merchant and Network Services. The company was founded on March 18^th, 1850, when three companies consolidated their businesses. AMEX was initially involved in the express transportation of goods between New York and surrounding towns, but it quickly expanded its footprint, and by 1900, it had begun expanding internationally. By that time, AMEX had pioneered innovations, such as the Money Order and Travelers Checks.

However, the US government nationalised the express business in 1918, forcing the company to concentrate on its banking and travel services. Throughout the century, AMEX expanded into insurance, publishing and investment banking through mergers and acquisitions. By the turn of the millennium, AMEX had become a major provider of consumer, business and corporate cards. The company offers travel solutions such as traveller’s checks, tour planning as well as hotel and car reservations. AMEX is listed on the NYSE, where it trades under the ticker symbol AXP. The stock falls in the Financial Services sector, under the Credit Services industry. The company debuted on the NYSE on May 18^th, 1977.

AMEX Stock History

Since going public, AMEX has performed 6 splits, with the last one being a 3-for-1 in May 2000. Stock splits usually make a stock more affordable for new investors, effectively improving demand, liquidity and volume. The AMEX stock kick-started a multiyear rally from the mid-1990s that saw a rise from circa $10 to highs of circa $55 by September 2000. The stock then fell to circa $25 by September 2001 as the US Fed kept interest rates high and weakened both consumer and corporate spending. Nonetheless, the stock recovered as economic conditions recovered, and it managed to hit a high of circa $65 by May 2007. As a banking stock, AMEX was hit hard by the 2008 global financial crisis, as it plunged to lows of circa $10 by March 2009.

Since then, the stock has sustained a strong rally, first hitting a high of circa $95 in June 2014, before retracing to lows of circa $50 by February 2016. It then resumed its uptrend that sent the stock to a high of just above $136 in February 2020. AMEX has always been a generous dividend payer, just like many other banking stocks. On top of the regular income, AMEX investors have also been treated to higher stock price gains.

How to Trade the AMEX Stock

Here are the factors to consider when trading the AMEX stock:

Legislative and Taxation Issues
AMEX thrives when consumer spending is growing. This can be influenced by legislative issues such as minimum wage rates and taxation issues such as tax cuts. An increase in wages inspires higher spending by consumers. Tax cuts, such as the 2017/2018 corporate tax reduction to 21% from 35%, boosted the spending of businesses. Higher spending triggers higher prices for the AMEX stock, whereas lower spending triggers lower prices.
Economic Conditions and Monetary Policy
Banking stocks rely heavily on the prevailing economic conditions and monetary policy. Favourable economic conditions are characterised by higher consumer and business spending, which are positive fundamentals for the AMEX business. Weak economic conditions limit the usage of AMEX services and may inspire lower prices for the stock. The monetary policy situation, especially interest rates, also greatly influence how AMEX performs. Higher interest rates limit the spending of AMEX customers, and it can also increase the risk of defaults even though the company caters for higher-income clients. In contrast, a low-interest regime encourages higher spending in both businesses and consumers.
Competition and New Product Rollout
AMEX faces tough competition from well-oiled and high-wheeled rivals such as Discover, Visa and MasterCard. While AMEX is known to cater to the up-market clientele, its competition offers cheaper solutions with increased add-ons that may appeal to the company’s core market. Still, AMEX has, in recent years, rolled out products that target the mid and lower-end consumer market. The financial space is constantly evolving, and it is always important to watch out for digital payment players, such as eWallets and cryptocurrencies, that may also pose a threat to AMEX.
Periodic Earnings Reports
AMEX’s fiscal year runs from January to December. It is always important to track the release of quarterly and annual reports that offer insight into important business metrics such as revenue, profits, dividend payouts, and future guidance. Positive reports usually inspire higher prices, where negative reports can pressure the stock lower.

Why Trade AMEX on the AvaTrade MT5 Platform

Here are the advantages of trading the AMEX stock with AvaTrade:

A reputable broker with international regulation in various jurisdictions
Offers leveraged trading and competitive spreads
Ability to short sell AMEX stock
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Access to the AvaProtect™ risk management solution
Engage in social trading via AvaSocial
Access advanced analysis from Trading Central