Australia's Big Four banks have long been considered the go-to stocks for most local investors, having generated enormous returns over recent years thanks to the low interest rate environment.
But all four banks have come under selling pressure in recent weeks to all be facing the possibility, and even the likelihood, of hitting a bear market.
Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) all hit record highs between March and April this year, while National Australia Bank Ltd. (ASX: NAB) traded at its highest price since before the Global Financial Crisis.
But since then, Commonwealth Bank has fallen 17.5%, while ANZ and NAB have both plunged 16.8% and 19% respectively, placing them all on the cusp of a bear market which is defined as a drop of 20% or more. Indeed, Westpac has already hit that point dropping a massive 22.2% since its high of $40.07, to trade at just $31.16 today. These four stocks have been the key driving force behind the S&P/ASX 200's (Index: ^AXJO) (ASX: XJO) near 9% plunge since late April.
It seems that the market has finally switched onto just how expensive each of the bank stocks have become at their peaks, while they've also clued onto the strong headwinds that threaten their future earnings potential. Indeed, bad debt charges will inevitably rise in the future and margins will continue to contract as a result of competition, while stricter capital requirements are also likely to impact their returns on equity.
Although there is a chance of a recovery in the near-term (especially if the RBA reintroduces its easing bias), the banks still remain expensive investment prospects which could struggle to generate market-beating returns over the long run. As such, investors should take the market's recent dive as an opportunity to turn their attention away from the banks, and towards other investment opportunities.