After a comparatively decent showing in May, the Commonwealth Bank of Australia (ASX: CBA) share price gave back its gains and more in June.
During the month, Australia’s oldest bank saw its shares lose 13.4% of their value.
This compares unfavourably to the ASX 200 index and its 8.9% decline in June.
Why did the CBA share price drop in June?
The CBA share price was sold off early on in the month after the Reserve Bank of Australia shocked the market with a far more aggressive rate hike than the market was expecting.
This sparked fears that the central bank’s attempts to tame inflation could bring about a recession and lead to a rise in bad debts.
It wasn’t just the CBA share price that tumbled on the news. All the big four banks dropped and ultimately posted sizeable monthly declines.
Also putting pressure on the CBA share price was a broker note out of Morgan Stanley last month.
Due to concerns over a weaker housing and mortgage market, its analysts retained their underweight rating and slashed their price target on the bank’s shares from $91.00 down to $79.00.
Morgan Stanley points out that Australian mortgage growth has slowed meaningfully during previous quick and aggressive RBA rate hikes. Unfortunately, this time around the broker suspects that things could be even worse.
“In this cycle, we believe the slowdown will be greater given household leverage is higher than in prior cycles, mortgage rates are starting from a lower base, and cash rate hikes are likely to be larger,” the broker said.
Elsewhere, the team at Citi retained its sell rating and $90.75 price target. Citi warned that the valuation gap between CBA and the rest of the big four could narrow.