Fuelled by surging ASX bank shares, the S&P/ASX 200 Index (ASX: XJO) has had a truly extraordinary week – and we still have one more day of trading left!
Since Monday, the ASX 200 has risen from 5,497 points to close today at 5,851.1 points – a swing over 6.5%.
Driving this, the big four ASX bank shares have taken off this week in a big way.
Let's take Commonwealth Bank of Australia (ASX: CBA). It was asking just $58.80 a share on Monday morning. Today, investors were seeking $65.73 a share at market close. That's a four-day turnaround of almost 12% – as I say, extraordinary stuff.
It's an even better story with Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB) shares, all of which are up more than 20% since Monday. You can't make this stuff up.
So what's going on here? And more importantly, are the ASX bank shares a buy today?
Why ASX bank share prices are raising the roof
In my view, what's happening with the ASX bank shares is a pure shift in sentiment towards the economy, rather than anything specific to the banking sector.
Banks are one of the most economically-reliant companies on the ASX. That means they are usually more profitable when the broader economy is going well, and decidedly less so if the economy is going poorly or is in a recession.
Ever since the outbreak of the coronavirus pandemic, the market has more or less valued the banks at 'recession prices', which explains why the big four ASX banks have seen their market capitalizations smashed in 2020 so far.
But this sentiment has decisively shifted this week. Why? Well, it's likely to be a combination of factors. States around the country are increasingly lifting coronavirus-related restrictions and lockdowns, which is bringing thousands of businesses out of hibernation.
And just today, the Reserve Bank of Australia (RBA) governor Philip Lowe told a Senate hearing that the RBA expects there to be less economic damage than they first feared.
As you can imagine, these developments have likely contributed to a huge boost in confidence around where the economy is heading in the short- to medium-term.
Are the ASX bank shares a buy today?
Even though ASX bank shares are storming higher this week, I'm not too interested myself.
We still don't know the extent of the economic damage that will stem from the coronavirus. We still don't know how badly the banks will be hit for the rest of 2020 and in 2021 and beyond. And we still don't know when the banks (who have always been known for their dividend payments) will be able to pay dividend cheques anywhere near the levels they used to.
As such, I think there are better places to put your money today. And if you were really bullish on ASX bank shares, you probably should have been buying last week!
