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Why Square Stock Dropped 6.4% Today

By Travis Hoium – Sep 28, 2021 at 2:46PM

Key Points

  • The market is down and high-beta stocks like Square can drop rapidly when that happens.
  • Investors don't like rising rates for growth stocks and higher rates won't help Square's borrowing business, either.

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Growth stocks are down and that's not good news for Square today.

What happened 

Shares of fintech stock Square (SQ -0.84%) took a hit on Tuesday, falling as much as 6.4%. Shares are near their daily lows at 2:10 p.m. EDT, trading 6.1% down for the day. 

So what

The market news today is that stocks overall are down and growth stocks are being hit harder than most. As I'm writing, the S&P 500 is down 2.1% and the Dow Jones Industrial Average is off 1.7%, so it's no surprise that high-volatility (high-beta) stocks like Square are magnifying those losses. 

Square Cash Card being used on a Square reader.

Image source: Square.

One of the biggest reasons the market is down today is because interest rates are on the rise. The 10-year U.S. Treasury yield rose 4.5 basis points on Tuesday and now sits at 1.53%, the highest level we've seen since early in the summer. 

Higher interest rates can mean slower growth for the economy overall, which is why markets react when rates rise. For fintech stocks like Square, it can also mean rising rates for money it borrows to customers, which could reduce demand for loans. 

Now what

I don't think the increase in interest rates will have much of an impact on Square's business. Retail and online sales are growing as the economy recovers and that should lead to revenue growth. 

Growth stock investors can expect volatility as the market absorbs higher rates, supply chain shortages, and economic recovery. But overall the trend for Square's business is solid and that's why I'm staying bullish on the stock. 

Travis Hoium owns shares of Square. The Motley Fool owns shares of and recommends Square. The Motley Fool has a disclosure policy.

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