The banking giant scaled new heights in June but ended the month back under the $100 per share mark.
The post Why the CBA (ASX:CBA) share price pulled back from record highs in June appeared first on The Motley Fool Australia. –
It was one step forward and one step back for the 银行及金融 - 澳洲联邦银行 (ASX: CBA) share price last month.
Shares in the leading bank rallied strongly by mid-June, hitting a new all-time high of $106.57 on 17 June.
Just as things were looking unstoppable for CBA shares, a sharp 7.4% sell-off to $98.06 between 18 and 21 June would erase their monthly gains.
The CBA share price finished last month at $99.87, down 6.3% from record all-time highs, but still eking out a small monthly gain of 0.41%.
CBA share price month in review
Australia’s economic recovery gathering momentum
The Reserve Bank of Australia (RBA) held its June monetary policy meeting on 1 June, where its board said:
The economic recovery in Australia is stronger than earlier expected and is forecast to continue.
The RBA also commented on the housing market, saying:
Housing markets have strengthened further, with prices rising in all major markets. Housing credit growth has picked up, with strong demand from owner-occupiers, especially first-home buyers. There has also been increased borrowing by investors.
The positive news regarding the broader Australian economy may have been a contributing factor in helping the CBA share price perform strongly in early June.
Regulatory bodies flag “increased risk taking”
The Council of Financial Regulators (CFR), which includes heavyweight bodies the RBA, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, and Treasury, held its quarterly meeting on 11 June, where it addressed potential housing market risks.
The quarterly statement highlighted:
APRA has written to the largest authorised deposit-taking institutions (ADIs) to seek assurances that they are proactively managing risks within their housing loan portfolios, and will maintain a strong focus on lending standards and lenders’ risk appetites.
Despite “signs of some increased risk taking recently”, the CFR said overall lending standards “remain sound”.
Looming interest rate hikes
In theory, banks can pass on the higher interest rate to borrowers, and experience an increase in profitability as net interest margins expand.
However, higher interest rates could also slow economic growth as borrowing rates tighten.
Concerns over higher interest rates took their toll on the broader market, with the S&P/ASX 200 Index (ASX: XJO) tumbling 1.81% on 21 June. The heavy selling was driven by losses in cyclical and defensive sectors including financials, industrials and utilities.
On this day, the CBA share price took a 5.4% tumble to $98.06. At the time of writing on the first day of the new financial year, Commbank shares are trading 0.88% lower at $98.99.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.