Why Block Stock Cratered by Nearly 62% in 2022's First Half

Shares of fintech company Block (NYSE: SQ) -- formerly known as Square -- tanked by 61.9% during the first half of 2022, according to data from S&P Global Market Intelligence. That was a far worse performance than the S&P 500 and Nasdaq Composite indexes, which fell by 21% and 31%, respectively, from their all-time highs.

There were many reasons for Block's steep drop. The biggest factor was rising interest rates. In an attempt to get inflation under control, the Federal Reserve in March began lifting its benchmark federal funds rate from the near-zero it had cut it to at the start of the pandemic to an upward limit of 2% as of June. More rate hikes are expected following the next two Fed meetings in July and September. The federal funds rate is still at a historically low level, but the speed and magnitude of the rate changes have dragged down Block and other high-growth but richly valued stocks. There is an inverse relationship between interest rates and the present value of risk assets like stocks. Thus, rising rates generally lead to lower stock prices.