Why did the CBA share price go backwards in August?

The Commonwealth Bank of Australia (ASX: CBA) is off to a rough start to the new month, down 2.23% at the time of writing.

CommBank is far from the only stock under pressure, though, following another day of selling in US markets. This, as investors fret over stubbornly persistent inflation and the prospect of fast-rising interest rates.

At the time of writing the S&P/ASX 200 Index (ASX: XJO) is down 1.79% while the S&P/ASX 200 Financials Index (ASX: XFJ) is down 1.77%.

That’s today’s price action.

So why did the CBA share price go backwards in August?

What headwinds is the ASX 200 bank facing?

From the closing bell on 29 July through to the closing bell on 31 August, the CBA share price fell 3.3%.

That was a stark reversal from the 11.5% gains CommBank posted in July. And it underperforms the 0.8% gain delivered by the ASX 200 in August.

The CBA share price, alongside the other big banks, faced some headwinds as the reality of longer-lasting inflation and likely higher for longer interest rates began to dawn on the markets in August.

Higher interest rates can benefit banks by enabling them to increase their net interest margins (NIMs). However, if rates rise too quickly it could increase the levels of bad debts and decrease interest in new mortgages.

And with CoreLogic reporting that Sydney dwelling prices are down 5.9% quarter-on-quarter over the past 12 months, with Melbourne prices down 3.8%, investors may well be worried about homeowners coming under pressure.

Also sending the CBA share price lower last month, the stock traded ex-dividend on 17 August. CommBank will pay a final fully franked dividend of $2.10 on 29 September. But in order to get your hands on that dividend, you had to own shares on 16 August.

Shares commonly drop on the day a stock trades ex-dividend.

Finally, the CBA share price received a fair bit of analyst coverage over the past month for the relatively high premium it commands. CBA trades on a price-to-earnings (P/E) ratio of 17.8 times, the highest among any of the big banks.

How has the CBA share price performed longer-term?

Down 6% over the past 12 months, the CBA share price is up 25% over the past five years. Longer-term, that edges out the 20% five-year gains posted by the ASX 200.

The post Why did the CBA share price go backwards in August? appeared first on The Motley Fool Australia.

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More reading

• What’s the outlook for ASX 200 bank shares in September?
• What is the highest CBA shares have ever been?
• Are ANZ shares really offering the highest dividend yield of the big four?
• The CBA share price is down 4% in August. What’s going on?
• Own CBA shares? $31b of the bank’s home loans face increasing climate risks

Motley Fool contributor Bernd Struben 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 Scott Phillips.

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