As one of the Big Three consumer credit reporting agencies worldwide, Equifax is a company the modern economy can’t do without. Every loan origination is preceded (or at least should be) by a comprehensive background check of the borrower’s creditworthiness. Equifax, Experian and TransUnion make that check possible by collecting and aggregating information on hundreds of millions of individuals each.
Loan originations rise when the economy is growing, so it is no wonder that demand for credit checks increases, as well. Equifax is a direct beneficiary of such trends. The liquidity boom created by the fiscal and monetary stimulus during the pandemic led to a surge in loan demand for housing and automobiles, among others, boosting the company’s financials.
But the situation reverses when the economy starts to cool and loan demand decreases. That’s just what Equifax warned about in its latest earnings report. The company expects an 11% drop in mortgage inquiries in the second quarter as higher interest rates discourage new home purchases. Not to mention that while house prices remain close to their records, the number of existing home sales has dropped back to the levels seen near the bottom of the Financial Crisis in 2010.
In other words, the US housing market appears to be on shaky footing. Could Equifax be vulnerable, as well? Just looking at its forward P/E of 30, the answer is unequivocally Yes. But the chart below gives investors another reason to be wary of the stock.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!
The stock’s monthly chart reveals a textbook five-wave impulse pattern up to its all-time high of $300 a share in late-2021. According to the Elliott Wave theory, a three-wave correction follows every impulse. And indeed, Equifax tumbled more than 50% to $146 in October, 2022. The 2023 recovery failed to reach a new record and looks more like a corrective three-wave structure.
We’ve labeled the impulsive part of the cycle as I-II-III-IV-V. If this count is correct, waves A and B of the following retracement are already in place. This means that we can expect more weakness in wave C back to the support of wave IV near $100 a share. From the current price of ~$226, that’ll be another 50%+ decline.
Thursday’s Q1 GDP figure missed economists’ estimates by a wide margin, while inflation actually reaccelerated. It is too early to tell, but these might be the early signs of a stagflationary trend. J.P. Morgan CEO Jamie Dimon recently said that this would be a worst-case scenario, because the Fed would have to simultaneously fight inflation and support a weak economy.
Given its high valuation, it won’t take a big crisis to drag Equifax down. A regular run-off-the-mill economic slowdown would be enough to bring its richly-priced stock to more sensible levels. One seems to be on the horizon already.
In our Elliott Wave PRO subscriptions we provide analyses of Bitcoin, Gold, Crude Oil, EURUSD, USDCAD, USDJPY and the S&P 500 every Sunday and Wednesday! Check them out now!
