Square slumps 5%. How could this impact the Afterpay (ASX:APT) share price today?

The Afterpay share price could be set for further declines on Tuesday.

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The Afterpay Ltd (ASX: APT) share price could be set for another decline on Tuesday as major US indices tumble overnight.

Technology stocks tank on Wall Street

The tech-heavy Nasdaq Composite plunged 311 points or 2.14% overnight, down to a two and half month low.

It looks like a correction is well underway, with the Nasdaq down more than 7% since the beginning of September.

Perhaps more specifically for the Afterpay share price, its soon-to-be parent company Square Inc (NASDAQ: SQ) slumped 5.43% to a two and a half month low of US$226.25.

While Afterpay’s US-listed rival, Affirm Holdings Inc (NASDAQ: AFRM) also fell sharply, down 8.42%.

Headlining the sharp declines across the tech sector was a jump in bond yields.

The US 10-year Treasury yield edged higher on Monday night, reaching session highs of 1.51% and currently trading around 1.482%. It hit a two month high of 1.56% last week as investors were increasingly concerned about inflationary pressures, looming interest rate hikes and tighter monetary policy.

The richly valued tech sector has taken the brunt of the selling as investors rotate and rebalance away from high growth sectors.

What could this mean for the Afterpay share price?

Unlike conventional takeover offers that come forth with a fixed price tag, Afterpay and Square have agreed to an all-script deal which will see its shareholders receive a fixed exchange ratio of 0.375 shares of Square for each Afterpay share they hold on the record date.

This means that between now and when the transaction closes, which is expected around the first quarter of calendar year 2022, Afterpay shareholders bear the risk of a higher or lower Square share price.

After the Square share price declined 5.43% overnight to US$226.25, this gives the Afterpay share price a theoretical value of $116.36 after taking into consideration the fixed exchange ratio and current exchange rates.

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

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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., and Square. 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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