June witnessed a euphoric surge in the Commonwealth Bank of Australia (ASX: CBA) share price. CBA shares hit $100 for the first time and marked a new all-time high of $106.57.
Fast forward to today, the CBA share price has tumbled 5% in the last month, closing at $98.19 last Friday.
Why the CBA share price is struggling to hold record highs
Interest rate concerns
The CBA share price plummeted 7.41% from $105.91 to $98.08 between Friday 18 June and Monday 21 June.
During this time the broader market experienced a sharp sell-off, headlined by cyclical and value sectors including financials, energy and utilities.
The sell-off was driven by concerns that interest rate hikes might occur sooner than expected.
In the United States, the Federal Reserve said it was likely to begin increasing interest rates by 2023 instead of 2024.
Back at home, Westpac Banking Corp (ASX: WBC) predicts that the Australian economy might be ready for its first interest rate hike in more than a decade.
Westpac thinks the RBA could be raising interest rates by the first quarter of 2023.
This prediction came about on 21 June, when the CBA share price tanked 5.43% to $98.06.
The last month has seen a resurgence of COVID-19 cases around Australia. Stubbornly high COVID cases reported each day has extended Greater Sydney’s lockdown to 30 July. Meanwhile, Victoria is in a five-day snap lockdown.
The Australian reported that Sydney’s lockdown has “smashed consumer confidence in the country’s biggest city, with worse to come.”
The report quoted Westpac chief economist Bill Evans who said, “confidence in Sydney and New South Wales could fall significantly further if lockdown measures are unsuccessful or slow to act in containing the outbreak.”
In addition, the report flagged concerns that the Sydney lockdown could send Australia’s economic growth backwards in the September quarter.
Another 111 new cases in Sydney on Saturday may weigh on sentiment for both the CBA share price and the broader market.
What about the property market?
The red hot Australian property market and surging lending figures is likely another factor supporting the bullish performance of the CBA share price.
Earlier this month, CoreLogic released a comprehensive overview of how the housing market performs during lockdowns.
The report said that: “Transaction activity slows markedly through lockdown periods, however a ‘catch up’ in home purchases has been evident as restrictions ease.”
In addition, CoreLogic Head of Research for Australia, Eliza Owen observed:
A big part of why the housing market didn’t see further value declines was the enormous income support packages provided to households, the role of JobKeeper in maintaining employment relationships, low mortgage rates and mortgage repayment deferrals.
In the event of another extended lockdown, the future of housing demand and supply becomes much less certain if that same government and institutional support is not there.