Commonwealth Bank of Australia (ASX: CBA) shares crashed lower in August, and the declines have continued through most of September so far.
At the time of writing, the ASX bank stock is down around 0.2% to $153.13 a piece. Today's decline means the shares are down around 5% for September so far and 6% for the year to date.
For context, the S&P/ASX 200 Index (ASX: XJO) is up around 0.3% in Wednesday morning trade. This index is down around 3% for September so far and roughly 0.5% higher for the year to date.
Now the question is, should I buy CBA shares in the dip?
Could the shares rebound next month or is there more downside to come?
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What has happened to CBA shares in September?
After a difficult August, CBA shares started trending higher in the first week of September, but then the tumble resumed.
The banking giant has faced several persistent headwinds this month, including a cooling property market and renewed forecasts for more interest rate increases.
The Reserve Bank of Australia (RBA) is now widely expected to hike interest rates next week on the 29th of August. All four of Australia's major banks, including CBA, are forecasting a 25-basis-point increase when the board meets next week.
The change in sentiment is driven by rising oil prices amid escalating conflict in the Middle East, a stubbornly high inflation rate, and a tight jobs market.
RBA governor Michele Bullock recently warned that Australia's jobs market was still putting upwards pressure on wages, business costs, and inflation. She said that unemployment may need to rise to tame inflation, adding that an unemployment rate of 4.5% to 5% could help ease inflation pressure.
And all this is happening against a backdrop of a highly competitive mortgage market. CBA often has to cut mortgage prices and squeeze its net interest margins to remain competitive. And this eats into the bank's profits.
Should I buy CBA shares before the end of the month?
Brokers are pretty pessimistic about the outlook for CBA shares over the next 12 months.
Market Index data shows that all brokers have a strong sell rating on the banking giant's shares. The average $125.20 target price implies a potential 18% downside, at the time of writing.
TradingView data shows something very similar. Out of 16 analysts, 14 have a sell or strong sell rating on the shares. Another two rate the bank stock as a hold.
They all agree that a downside is ahead, however. The average $128.29 target price implies a potential 16% downside ahead. But some still think the share price could fall by up to 41%, to just $90 a share.
Shaw and Partners rates CBA shares as a sell and warns that, with a price-to-earnings (P/E) ratio of around 23.5, CBA is the highest of the big four ASX 200 bank stocks.
The broker added that Federal Government initiatives to increase housing supply and improve affordability are likely to intensify competition and place even more pressure on lending margins.
Medallion Financial Group also has a sell recommendation on CBA shares. The broker thinks that the bank's valuation is stretched and that better valuation opportunities exist elsewhere.
With forecasts like this, I think there is a very good chance that CBA shares will fall further in October.
