Commonwealth Bank of Australia (ASX: CBA) shareholders are rejoicing today with their shares soaring 3.9% higher, more than reversing yesterday's big losses. Australia's largest bank was part of the chorus of blue-chip stocks that led the S&P/ASX 200's (Index: ^AXJO) (ASX: XJO) demise on Tuesday with the index ultimately ending the day 3.8% lower.
It was one of the ASX's biggest single-day losses in recent memory. Despite murmurs that the local bourse could be headed for an official bear market (a bear market is defined as a drop of 20% from its peak), the bank was well and truly back in the market's favour today.
By comparison, each of its major rivals climbed between 2% and 2.5% while the ASX 200 itself was up 1.9%.
Should you join the crowd?
When a beaten-down company with a strong reputation soars, it can be tempting to join the crowd in buying shares.
Indeed, even despite today's gains, the bank's shares are still sitting nearly 25% below their all-time high, recorded in March this year, leading some investors to think they're getting a bargain today.
While its shares are certainly looking more attractive now than they were six months ago; investors should approach Commonwealth Bank with caution.
Indeed, the bank has enjoyed incredible tailwinds in recent years which drove its shares to record levels, but those tailwinds certainly look to be easing off. In fact, there are now headwinds facing the sector and the Australian economy as a whole, which could hinder the bank's ability to grow earnings. At its current price, investors may be better off ignoring the bank's lure. Despite its recent losses, there's nothing that says its shares can't fall any further.