After hitting all-time highs in March, why did the CBA share price tumble 5% in April?

After hitting new record highs in March, the CBA share price retreated in April. But why?

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Following on a blistering six-month run higher, the Commonwealth Bank of Australia (ASX: CBA) share price sank 4.8% in April.

Shares in the S&P/ASX 200 Index (ASX: XJO) bank stock closed out March trading for $120.34. When the closing bell sounded on 30 April, shares were swapping hands for $114.54.

That saw the CBA share price underperform the ASX 200 in April, with the benchmark index slipping a lesser 3.0% over the month.

Though you're unlikely to hear investors who bought shares in early November complaining. CommBank stock closed out April up more than 18% from its 31 October levels.

Here's what happened with the big four bank in the month just past.

CBA share price retreats from record highs

April presented a very different picture from March, where we saw the CBA share price notch a series of new all-time highs, closing at $121.45 a share on 8 March.

With no significant price-sensitive news out from the bank in April, some of the selling pressure looks to be related to that strong run, with numerous analysts cautioning that CBA's valuations are looking stretched.

As the Motley Fool reported on 3 April, Morgans analyst Damien Nguyen slapped a sell rating on the bank, despite noting it's a high-quality company.

According to Nguyen:

Australia's biggest bank enjoys a loyal retail investor and customer base. However, we believe potential medium-term returns are too compressed at current prices considering its earnings outlook and elevated trading multiples.

Morgans has a 12-month target for the CBA share price of $91.28.

And on 16 April the Motley Fool added UBS to the list of brokers that think the CBA share price has further to fall. Though UBS is more optimistic than Morgans.

Citing cost inflation and CommBank's sizeable spending on information technology (IT), the broker believes the bank's costs will increase. UBS has a price target of $105 on the bank.

Indeed, in FY 2023, CBA's IT expenses increased by 8% year on year.

But not everyone believes CBA's IT spend will pressure its share price.

Perpetual Investment Management portfolio manager Anthony Aboud points out that Australia's biggest bank has been quick to embrace new tech, particularly artificial intelligence (AI).

"If you were to believe that there would be cost out efficiencies through AI initiatives, CBA has historically been the one bank which could be able to capitalise on that first," Aboud said.

What else were ASX 200 investors considering in April?

Atop concerns over potentially stretched valuations (which really is nothing new), the CBA share price came under the same pressures that sent the ASX 200 and rival bank stocks lower in April.

Those headwinds include increasing odds that the RBA and US Fed will both keep interest rates higher for longer than the market was previously pricing in. This could lead to higher levels of non-performing loans in the months ahead.

CBA releases its third-quarter update next week, Thursday 9 May.

Stay tuned!

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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