Why is the Block share price plunging 8% today?

Shares in the ASX BNPL company are following the lead of its NYSE counterpart.

| More on:
a man with a moustache sits at his computer with his hands over his eyes making a gap between his fingers so he can peek through to his computer screen.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The Block share price is down 8% in Monday morning trading
  • Tech shares are selling off following hawkish interest rate comments from US Fed chair Jerome Powell
  • BNPL shares are particularly vulnerable to fast-rising rates, which could increase their bad debt levels

The Block Inc (ASX: SQ2) share price is tumbling hard today, down 8.21% in morning trade.

Block closed on Friday trading for $105.80 per share and is currently trading for $97.11 per share.

It's not just the Block share price sliding today either.

Fellow ASX BNPL share Zip Co Ltd (ASX: ZIP) is down 7.22%, while Sezzle Inc (ASX: SZL) shares have fallen 6.11% since the opening bell.

The tech sector is facing a sharper selloff than the broader market, with the S&P/ASX 200 Index (ASX: XJO) down 2.09% compared to a 3.76% decline in the S&P/ASX All Technology Index (ASX: XTX).

Still, the Block share price, alongside its BNPL rivals, is leading the charge lower. What's going on?

Jerome Powell's hawkish words

As you're likely aware, Block shares are listed on both the NYSE and ASX. Block began trading on the ASX on 20 January after completing its acquisition of Afterpay.

And in Friday's trade in the US, the Block share price closed down 7.7% on the NYSE, with futures currently down another 1%.

The fall was part of a sweeping selloff that saw the tech-heavy NASDAQ finish Friday down 3.9%.

Investors were hitting the sell button after US Federal Reserve chair Jerome Powell delivered his much-awaited speech at the Jackson Hole central banking summit in the US state of Wyoming.

And investors hoping for some dovish signals were left wanting.

Powell reiterated the central bank's full intentions to bring inflation back into its target range, acknowledging this will bring some pain to the economy.

According to Powell:

Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labour market conditions. While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses…

Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.

US Treasury yields increased following Powell's speech.

Commenting on the market's reaction, which included the sharp selloff in the Block share price, Joe Gilbert, portfolio manager at Integrity Asset Management said (courtesy of Bloomberg):

Powell wants financial conditions to tighten further and wanted the market to know that the Fed is not ready to declare victory over inflation yet. He also renounced any prospects of interest rate cuts soon. The market is repricing this prospect.

Tech shares are particularly vulnerable to rising rates, as they're often priced with future earnings growth in mind. With higher rates, the present cost of those future earnings rises.

The Block share price likely took a bigger hit than many, because BNPL shares are especially vulnerable to the monetary tightening environment.

With rates looking to rise into 2023 across most of the developed world, a growing cohort of analysts is sounding warnings on the rise of bad debts amongst the BNPL players, already an Achilles heel for the sector.

Block share price snapshot

With today's intraday loss factored in, the Block share price is down a painful 45% since listing on 20 January. Over that same period, the ASX 200 had dropped 5%.

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. and ZIPCOLTD FPO. 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.

More on BNPL shares

A woman sits back and enjoys the view from a paraglider, indicating share price lifts for ASX travel and adventure shares
BNPL shares

Up 71% in 3 weeks, have Zip shares topped out?

Despite the stellar run higher, Zip shares are still trading at a fraction of their February 2021 highs.

Read more »

A woman sits on a chair smiling as she shops online.
BNPL shares

Why is the Zip share price the best-performing ASX 300 stock so far this year?

The best-performing ASX 300 stock of 2024 so far is an unlikely hero.

Read more »

A happy girl in a yellow playsuit with a zip gives the thumbs up
Share Gainers

If I'd put $5,000 into Zip shares on 9 October, here's what I'd have now!

The stars have been aligning for Zip shares.

Read more »

woman using affirm to pay
BNPL shares

Up 288% in 6 months, Zip share price tipped for more outsized gains

Zip shares have rocketed 288% in just six months.

Read more »

A businessman stacks building blocks.
BNPL shares

Up 93% since October, why are Block shares marching ahead again on Friday?

ASX 200 investors have been snapping up Block shares.

Read more »

A man wearing glasses and a white t-shirt pumps his fists in the air looking excited and happy about the rising OBX share price
BNPL shares

Zip share price up 58% in 7 trading days! What's going on?

This BNPL provider has been on fire recently. But why?

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
BNPL shares

Shares sold: Why Zip is under fire from its own shareholders

Some Zip investors had their shares sold without their knowledge.

Read more »

Sad woman with her hand on her head and holding a credit card.
BNPL shares

Zip share price tumbles 9% despite explosive first-half growth

Zip had a strong half and delivered a big improvement in key metrics.

Read more »