Stock Market

Today, I have potentially good news and bad news concerning SoFi Technologies (NASDAQ:SOFI). SOFI stock investors can certainly celebrate the U.S. government’s passage of the debt ceiling deal. On the other hand, an upcoming decision from the Federal Reserve might be problematic for SoFi Technologies and its stakeholders.

Don’t get the wrong idea here. Overall, I’m bullish on SoFi Technologies for the long term. Yet, it’s important to be aware of the near-term risks pertaining to SoFi Technologies and to adjust your investment strategy and timing accordingly. So, let’s start off with a green flag before addressing a critical red flag.

What the Debt Ceiling Deal Means for SoFi Technologies

In case you didn’t get the memo, the U.S. just averted a fiscal cliff when the government raised its debt limit and thereby prevented a debt default (for now, at least). That’s a reason for SoFi Technologies’ investors to breathe a sigh of relief, but it’s not the only one.

Another reason to be bullish about SoFi Technologies is a particular aspect of the debt ceiling deal. Specifically, it ends the pandemic-era moratorium on required federal student loan repayments. Consequently, borrowers should expect to resume their student loan repayments this fall.

That might not be great news for borrowers, but it benefits SoFi Technologies. That’s because the company generates revenue by helping students refinance their loans. The pause on required student loan repayments was an ongoing problem for SoFi Technologies, but now that obstacle has apparently been cleared.

Fed Decision Could Be Problematic for SOFI Stock

In life and on Wall Street, for every green flag there must also be a red flag. And in the case of SoFi Technologies, the red flag might be waved by America’s central bank.

You might want to mark your calendar for Wednesday, June 14. That’s when the Fed, after a two-day meeting, might pause its series of interest rate hikes.

That series of rate hikes has been tough on U.S. banks generally, and on SoFi Technologies in particular. After all, high interest rates tend to inhibit borrowing and lending activity.

If you’re a risk-on type of financial trader, then feel free to buy SOFI stock prior to June 14. However, if you’re more cautious, it would be wise to wait instead of jumping into a hasty trade now.

Bear in mind, the May employment report indicated that 339,000 U.S. jobs were added that month. This suggests that the nation’s labor market isn’t weakening much, if at all. Consequently, the Fed may conclude that it’s not finished raising interest rates in order to tamp down inflation.

Be Cautiously Optimistic With SOFI Stock

The resumption of student loan repayments is clearly positive news for SoFi Technologies. Yet, a negative shock could happen soon if the Fed decides to continue hiking interest rates.

If you believe in the long-term future of SoFi Technologies, it’s fine to hold some shares of SOFI stock. That said, it’s also wise for investors to refrain from adding to their share positions until June 14, when they can get more clarity on central bank policy.

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.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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