The Block Inc (ASX: SQ2) share price is taking a tumble today, down 6.9% in late morning trade.
Shares in the ASX buy now, pay later (BNPL) company closed yesterday trading for $92.76 and are currently swapping hands for $86.38 apiece.
Itâs not just the Block share price under pressure today.
The S&P/ASX 200 Index (ASX: XJO) is down 2.2% at this same time.
Whatâs going on?
The Block share price is down sharply today after an overnight sell-off in US stock markets. By the time the dust cleared, the Nasdaq Composite Index (INDEXNASDAQ: .IXIC) ended the day down 3.4%.
Block, which acquired Afterpay in January this year, is dual-listed on both the ASX and NYSE. And Block shares closed down 7.4% on the NYSE overnight.
The broader market sold off following the US Federal Reserveâs announcement of another 0.75% interest rate rise. The central bankâs fourth consecutive hike brings the official US rate to the 3.75% to 4% range.
While that move was largely expected, the post announcement media address by Fed chair Jerome Powell was decidedly more hawkish than investors had hoped for.
âThe level of rates that we estimated in September, the incoming data suggests thatâs actually going to be higher. There is no sense that inflation is coming down,â Powell said. âWeâre exactly where we were a year ago.â
And if that wasnât enough to spook investors, Powell added, âWe think we have a ways to go before we get to that level of interest rates that we think is sufficiently restrictive.â
The Block share price is especially sensitive to outsized rate hikes. Thatâs partly because the stock has been priced with future earnings in mind. And as rates continue to ratchet higher, the present cost of investing in those future earnings goes down.
Higher rates also could portend an increase in bad debts from Blockâs BNPL customers, many of whom will already be struggling with the impacts of soaring inflation.
Block share price snapshot
Itâs been a tough ride for the Block share price. Since listing on the ASX on 20 January, shares are down 51%. For context, over that same period, the ASX 200 is down 7%.
The post Why did the Block share price just tumble 7%? appeared first on The Motley Fool Australia.
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Motley Fool contributor Bernd Struben 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 Block, Inc. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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