Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy? The ASX bank sector has been roaring back to life in recent weeks.

Since 25 May 2020 the CBA share price has soared higher by 22%. The market seems to think that the $60 billion jobkeeper overestimation means the economy will be in much better shape. That jobkeeper estimation error was due to overly pessimistic forecasts according to reporting by the Australian Financial Review.

The performance of CBA’s earnings and share price is largely linked to the Australian economy. Indeed, every ASX bank relies on a solid national economy. CBA is exposed to the same sorts of systematic risks as Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).

Where to now for the CBA share price?

The CBA share price is still down by around 19% from the level at 21 February 2020. So it’s not as though investors are pricing in a complete recovery for CBA yet.

The major bank made a $1.5 billion additional credit provision for the potential impacts of COVID-19 in its third quarter update.

If CBA’s provision is enough to account for all of the potential damage then it may in a much better position than investors were fearing a couple of months ago.

However, there’s one big factor I’m wary of. The official Australian interest rate is now incredibly low. This will likely cause a negative hit to CBA’s net interest margin (NIM). The NIM is important because banks generate a lot of their overall profit from the money they lend out.

I’m not sure how much higher CBA’s share price can go over the next couple of months. COVID-19 will cause a sizeable hit to the profit this year.

It will be interesting to see what CBA does with its dividend. ANZ and Westpac decided to defer the dividend. NAB decided to pay a much smaller dividend. After the recent strong share price increase for CBA, I’d be inclined to go for other shares first.

More reading

• The ASX bank dividend recovery may be better than what the market thinks
• Will ASX 200 shares hit a record high in June?
• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• These quality ASX dividend shares have very juicy yields
• ASX 200 closes higher, banks keep rising

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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On Tuesday the S&P/ASX 200 Index (ASX: XJO) returned from the long weekend and recorded a stunning gain. The benchmark index jumped 2.45% to 6,144.9 points.

Will the market be able to build on this on Wednesday? Here are five things to watch:

ASX 200 to fall.

The ASX 200 looks set to run out of steam on Wednesday and drop lower. According to the latest SPI futures, the benchmark index is expected to fall 91 points or 1.5% at the open. This follows a mixed night of trade on Wall Street which saw the Dow Jones fall 1.1%, the S&P 500 drop 0.8%, and the Nasdaq push 0.3% higher. The latter index hit a record high during last night’s trade.

Oil prices mixed.

Energy producers such as Oil Search Limited (ASX: OSH) and Santos Ltd (ASX: STO) will be on watch today after a mixed night for oil prices. According to Bloomberg, the WTI crude oil rose 0.5% to US$38.38 a barrel and the Brent crude oil price fell 0.4% to US$40.64 a barrel. Oil prices were notably higher at one stage on supply cut optimism, before giving back most of their gains.

ANZ downgraded to a neutral rating.

One leading broker thinks the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price may have peaked after its strong run. According to a note out of Goldman Sachs, its analysts have downgraded the banking giant’s shares to a neutral rating with a $20.02 price target. The broker made the move on valuation grounds.

Gold price rebounds.

Gold miners including Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could be on the rise after the gold price rebounded. According to CNBC, the spot gold price rose 0.85% to US$1,719.00 an ounce ahead of the U.S. Federal Reserve meeting this week.

Tech shares on watch.

Tech shares such as Appen Ltd (ASX: APX) and Xero Limited (ASX: XRO) could defy the market decline today after their U.S. counterparts pushed higher. The Nasdaq index broke through the 10,000 points mark for the first time thanks to solid gains by the likes of Amazon and Facebook.

More reading

• Why you should be buying the dip in ASX gold stocks
• How to become a millionaire before your parents with ASX shares
• Why the CSL share price continues to trail the ASX 200
• The ASX bank dividend recovery may be better than what the market thinks
• Why I would buy Afterpay and these exciting ASX tech shares

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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