Why the Zip share price plunged 6% this morning

Zip shares have managed to claw back some losses from early trade.

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The Zip Co Ltd (ASX: Z1P) share price plunged on open, down 5.63% to $6.70 within minutes of the opening bell.

Zip shares have bounced off intraday lows, currently down 1.83% to $6.97.

Why did the Zip share price fall this morning

Tech-shares tank overnight

The US market tumbled overnight, with major indices S&P 500, Nasdaq Composite and Dow Jones Industrial Average down 2.04%, 1.63% and 2.83% respectively.

US-listed BNPL giant Affirm Inc (NASDAQ: AFRM) was among the worst-performing tech shares, tanking 10.79% to US$114.52.

Square Inc (NASDAQ: SQ), which is finalising its acquisition of Afterpay Ltd (ASX: APT), also tanked 5.97% to US$242.70.

The Zip share price ultimately cratered this morning under the bearish overnight performance of its tech and payment peers.

US 10-year Treasury yields top 1.5%

The US 10-year Treasury yield rose sharply overnight on rising inflation fears, climbing to a 3-month high of 1.55%.

Treasury yields have surged in the past week, rising more than 240 basis points from 1.30%.

A tech company’s valuation typically relies on fast-growing, future cash flows, which are discounted more heavily as yields increase.

Higher interest rates can also translate into higher borrowing costs which could hinder a company’s growth plans and balance sheet.

To add further insult to injury, the US Federal Reserve has indicated that it may begin pulling back its stimulus measures and consider raising interest rates as soon as next year, according to CNBC.

ASX slides on Wednesday

The Zip share price decline is broadly consistent with the broader S&P/ASX 200 Index (ASX: XJO) and S&P/ASX Information Technology (INDEXASX: XIJ) which have tanked a respective 1.37% and 2.72%.

The Afterpay share price is currently down 3.77%, likely influenced by the sharp decline of Square overnight.

Meantime, the Sezzle Inc (ASX: SZL) share price opened 4.55% lower to $5.75 and is currently down 2.7% to $5.77.

Should you invest $1,000 in Zip right now?

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*Returns as of January 13th 2022

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Affirm Holdings, Inc., Square, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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