What a rollercoaster it has been for the Zip Co Ltd (ASX: ZIP) share price.
After hitting a four-month high of $1.72 at market open today, shares in the buy-now, pay-later (BNPL) company are now being heavily sold off.
It was only late last month when Zip shares hit a multi-year low of 43.5 cents before rocketing by more than 300%. That included gains of around 20% on each of the previous three trading days this week.
However, in late morning trade, the share is trading at $1.15 – down 24.34% for the day.
Let's take a look at what could be weighing on the company's share price.
What's dragging Zip down?
It appears the Zip share price is cooling off after unusually strong sector moves over the past week.
BNPL peers Splitit Ltd (ASX: SPT) and Openpay Group Ltd (ASX: OPY) are down 5.77% and 23.6%, respectively.
Sezzle Inc (ASX: SZL) has endured a similarly tough day to Zip. Its share price jumped 46% in early trading following the release of the company's second-quarter update but has since slumped and is now 0.98% in the red.
Overnight data from the Federal Reserve could be sparking the sell off.
The release of the latest GDP readings showed that the US economy had shrunk by 0.9% in the second quarter.
Following the 1.6% contraction in the prior period, this now marks an 'unofficial recession' in the world's largest economy.
While the US government has insisted the US is not in recession, it seems investors aren't taking this lightly.
Technically, the National Bureau of Economic Research has the last say in declaring whether or not the US is in a recession.
It is worth noting though that if consumer spending does dry up then the BNPL industry would feel the impact. Discretionary purchases such as electronics, furniture, and clothing are likely to be the first to go.
For Zip to prosper in a gloomy economic environment, minimising credit risk is becoming a top priority. Especially, as bad debts continue to rise across the sector.
Zip share price snapshot
Over the past 12 months, the Zip share price has plummeted 82% and is currently down 71% year to date.
This is a massive difference from when its shares reached an all-time high of $14.53 in February 2021.
Based on today's price, Zip presides a market capitalisation of around $853.04 million.
