Why the CBA (ASX:CBA) share price pulled back from record highs in June

It was one step forward and one step back for the Commonwealth Bank of Australia (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”.

The quarterly meeting statement was released on 17 June. The CBA share price would go on to tumble 7.4% over the next two trading sessions to a low of $98.06.

Looming interest rate hikes

Westpac Banking Corp (ASX: WBC) believes the RBA could begin raising interest rates as soon as 2023.

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.

The post Why the CBA (ASX:CBA) share price pulled back from record highs in June appeared first on The Motley Fool Australia.

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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.

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