The Block Inc (ASX: SQ2) share price is down 5.7% in morning trade.
The global buy now, pay later (BNPL) stock closed yesterday trading for $115.15 per share. Shares are currently swapping hands for $108.59 apiece.
This comes as the All Ordinaries Index (ASX: XAO) is also giving up some of its recent gains, down 0.9%.
Here’s what’s putting extra pressure on the ASX BNPL share today.
Why is the Block share price plunging today?
The Block share price is falling on the back of the latest interest rate hike from the United States Federal Reserve, announced overnight Aussie time.
The latest 0.25% rate boost – the ninth consecutive hike from the central bank – takes the official US cash rate to 5.0%.
Though widely anticipated, the rate hike saw the tech-heavy Nasdaq Composite Index (NASDAQ: .IXIC) close down 1.6%.
As you may know, Block, which acquired Afterpay in January last year, is dual-listed in Australia and the United States. And the Block share price fell 6.2% on the NYSE yesterday.
The BNPL company has proven highly sensitive to the higher interest rate environment.
Higher rates throw up some stiff headwinds to growth stocks priced with future earnings in mind. As the cost of money rises, so too does the cost of investing in that future revenue.
And higher rates, of course, also will increase the cost of servicing the company’s debts. Not to mention likely see an increase in bad debts from some of its already stressed customers.
The Block share price may be even more sensitive to rate increases as regulators debate stringent new regulations for the pay by instalment sector. Those may subject Block and other BNPL companies to the same rules as credit card companies.
How has Block been performing?
As you can see in the chart below, the Block share price fell off a cliff during the early months of global interest rate increases. 2023 has been far more rewarding for the shareholders, with the stock up 18% year to date despite today’s slide.
