CBA Share Price Breaking out of Range: Two Factors to Consider

At time of writing, the share price of Commonwealth Bank of Australia [ASX:CBA] is up .78% to $72.13.

After going sideways in a narrowing range late March and May, the CBA share price broke out and is pushing higher:

ASX CBA Share Price - Commonwealth Bank Shares

Source: tradingview.com

Here are two factors to consider when thinking about the current CBA share price.

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Factor #1: Two cliffs loom for CBA share price

The current CBA share price is still hovering around where it was during the period when the Banking Royal Commission was on.

Does this mean CBA shares are value at this current price?

Well, there are two ‘cliffs’ it needs to navigate.

The first cliff, is what happens when the pause on mortgage payments stops.

CBA offered a six-month pause on repayments as the lockdown set in March.

According to latest Digital Finance Analytics (DFA) data, 37.5% of households are under mortgage stress.

The second cliff is based on what the Federal government does in the coming months.

In September, there is the proposed cut-off for the JobSeeker and JobKeeper bonus payments.

So far, the Morrison government is quite clear that it intends to stick by this plan — but things could change.

Murmurs of an extension or a half-measure of some sort are growing.

Factor #2: Macroeconomic factors could pull down any sustained rally

If you think of Big Four bank shares as a kind of catchment for macroeconomic sentiment, then what happens in the next three to four months could be crucial.

A vaccine could trigger a massive flood into global equities, including CBA shares.

Part of the recent rally for markets may be a pricing in of the probability that this could happen soon.

But even if you ignore the two cliffs mentioned before, it’s hard to see a full-fledged and rapid recovery for the Australian economy.

Just recently, the latest Australian unemployment figures came in at 7.1%.

But this doesn’t even scratch the surface of the problems facing the Australian economy.

The ‘underutilisation’ figure came in at 20.2% — which includes the underemployed as well as the jobless.

At some point, this could play into mortgage stress when September comes around, which in turn could eat into CBA’s margins.

As a result, a sustained rally in the CBA share price — at least back to February levels — appears a distant dream.

Regards,

Lachlann Tierney,
For The Rum Rebellion

PS: Three ‘Deep Value’ Stocks to Watch as the Market Recovers. Discover More.

 


Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 


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