The Afterpay Ltd (ASX: APT) share price is sinking as interest rate worries are sending share prices lower globally. Other ASX tech shares are also in focus.
At the moment the Afterpay share price is down more than 9%, the Xero Limited (ASX: XRO) share price is down over 2%, the WiseTech Global Ltd (ASX: WTC) share price is down over 5%. And so on. There is a lot of red right now.
Afterpay’s ASX peer has also seen a drop – the Zip Co Ltd (ASX: Z1P) share price is down another 3%. It is now down 45% over the past six months.
What’s happening with interest rates?
Well, nothing yet.
But, expectations are changing.
According to reporting by Bloomberg and various other media, the US Federal Reserve – widely seen as the most important Central Bank in the world – has indicated that a stronger economy and higher inflation could lead to earlier and faster interest-rate increases than previously expected.
It may also be “appropriate” to reduce the size of the Fed’s balance sheet soon after increasing the interest rate, according to some members of the Federal Reserve committee.
The committee also said that it would wind down the bond buying program faster than outlined in the November meeting.
Economists and investors are now thinking that US interest rates could start rising in March 2022, particularly as the Federal Reserve officials all expect that interest rates would rise in 2022, rather than just half of the officials as was the case before.
One of the main concerns is that the Omicron COVID variant could actually lead to further increases in house prices, rent, wage growth and more supply chain issues in the US.
What to make of this for the Afterpay share price and other businesses
Higher interest rates would be a problem for Afterpay. It doesn’t exactly have huge margins and an increase in the interest rate could see a narrowing of the Afterpay profitability.
On top of that, higher interest rates theoretically hurt the valuations of most businesses.
However, any decline in valuations could be attractive for investors wanting to buy quality businesses with attractive growth potential. I’m always on the lookout for long-term opportunities at better prices.
