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Reality kicking in for the banks

Over the last year, investors have pumped their money into overpriced, high-yielding stocks, which has driven the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) upwards. However, that method has largely come undone since May, with the market taking back a large portion of investors’ gains.

Leading into May, Westpac  (ASX: WBC), NAB (ASX: NAB), Commonwealth Bank  (ASX: CBA) and ANZ (ASX: ANZ) had climbed an incredible 67.3%, 49.6%, 44.5% and 52.8%, respectively, since last June. In fact, Westpac’s climb saw it briefly become a member of Australia’s $100 billion club, however, as investors recognised how overpriced it had become, the banks’ shares have now fallen in value significantly.

Whilst Westpac’s shares saw significantly higher gains than its competitors, it may come as no surprise that its shareholders have been the hardest hit in line with the fall. Since last month, Westpac’s shares have fallen a total of 18.6%, compared to the other three banks, which have fallen between 10.9% and 14.9%.

Following news this week that the US Federal Reserve will taper off its quantitative easing program next year, the banks are again trading in the red this week. In early afternoon trading, Westpac is the poorest performing bank today, trading at a 1% discount compared to yesterday.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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