Smashed! Why is the Block share price down 4% today?

As most investors would be painfully aware by now, it’s been a dire day for ASX shares and the S&P/ASX 200 Index (ASX: XJO) this Wednesday. At the time of writing, the ASX 200 has lost a nasty 2.4% and is back to around 6,840 points. But it’s been even worse for the Block Inc (ASX: SQ2) share price.

Block, the company formerly known as Square, has been put through the wringer. Block shares are presently down by a horrible 4.46% at $104.12 each. It was even worse earlier in today’s session. This morning saw the fintech share descend as low as $101.72 a share, a drop of almost 7%.

So what’s going on here? Why have Block shares fallen by almost double the drop of the broader ASX 200?

Well, with no news out of the company today, we can probably put this sharp drop down to the inflation fears that are so dramatically spooking investors today. As we’ve looked at extensively, US inflation figures came out last night, and what they revealed was not pretty. 

American inflation is running at a hot 8.3%, a figure far higher than what most commentators expected. US shares, and now ASX shares, have been smashed on this news, as fears grow that the US Federal Reserve will be forced to keep up its frenetic interest rate hikes to tame this inflation.

So this explains why almost all ASX 200 shares are deep in the red today. But why is Block getting such an enthusiastic drubbing?

Why is the Block share price getting a 5% smashing today?

Well, as my Fool colleague Catherine skilfully explained earlier today, ASX tech shares are some of the most sensitive to interest rates. Many of them are valued on what their future earnings may be, rather than what they are bringing in today.

Under some valuation models, higher rates make the value of future earnings less attractive. Thus, these are the companies that tend to get a more severe ‘re-rating’ when interest rate expectations change.

That would explain why we are seeing an oversized fall in Block shares today. This company is arguably very much valued for its future growth, given its current price-to-earnings (P/E) ratio of 312.5.

But it’s not just Block feeling the pain. Many other ASX tech shares, including Xero Limited (ASX: XRO), Brainchip Holdings Ltd (ASX: BRN), and Altium Limited (ASX: ALU) are also seeing drops of far more than the broader market.

No doubt investors will be hoping for a better time over the rest of the week.

At the current Block share price, this ASX 200 tech share has a market capitalisation of $60.87 billion.

The post Smashed! Why is the Block share price down 4% today? appeared first on The Motley Fool Australia.

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

• Why are ASX 200 tech shares being hit the hardest on Wednesday?
• Why are ASX 200 shares tumbling like dominos on Wednesday?
• Here are the top 10 ASX 200 shares today
• Why are ASX 200 tech shares having such a cracking start to the week?
• Here are the 10 most shorted ASX shares

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium, Block, Inc., and Xero. The Motley Fool Australia has positions in and has recommended Block, Inc. and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/5bkEDad