Commonwealth Bank Shares Jump 3% as Investors Flee Tech Stocks for Safety of Australia's Biggest Lender

Shares of Commonwealth Bank of Australia rose more than 3% on Friday, as investors moved money out of mining and technology stocks and into the country's largest bank following a sharp sell-off on Wall Street.

Commonwealth Bank shares gained A$4.86, or 3.09%, to A$162.03, after trading between A$158.02 and A$162.18. More than 2.1 million shares changed hands, giving the bank a market value of about A$271 billion, according to market data.

The bank did not release any announcement on Friday.

Biggest boost to the market

As one of the largest companies on the Australian Securities Exchange, Commonwealth Bank has a heavy influence on the benchmark index. Its gain helped limit losses on a day when mining and energy stocks weighed on the market.

The S&P/ASX 200 index fell 0.15% to 8,780.1. The financial sector rose about 1%, among the best-performing sectors.

A flight to safety

The rally followed a steep sell-off in U.S. technology stocks overnight. The Nasdaq Composite fell 2.9% after Meta Platforms raised its spending plans for artificial intelligence, adding to investor concerns about the rising costs of AI investment.

The tech rout pushed investors toward safer assets and sectors.

"Money is shifting into safer sectors, such as health care, insurers and consumer staples," said Tapas Strickland of Moomoo Australia and New Zealand, describing the broader market trend.

Large Australian banks are often seen as relatively defensive investments because of their stable earnings and dividend payments, which can make them attractive when markets become volatile.

Rate expectations

Commonwealth Bank shares have also been supported in recent weeks by shifting expectations for interest rates.

Earlier this month, the bank's shares jumped more than 3% after weaker-than-expected Australian employment data reduced expectations for another interest rate increase by the Reserve Bank of Australia. The data showed employment fell by about 39,300 jobs in September and the unemployment rate rose to 4.7%.

Following that data, market-implied odds of a November rate increase fell to about 17% from 32%, according to The Bull.

As Australia's largest home lender, Commonwealth Bank is closely tied to the housing market. A pause in rate increases could reduce the risk of borrowers falling behind on their mortgages.

Valuation concerns

Despite Friday's rally, Commonwealth Bank shares are down about 6% over the past year.

The bank has long traded at a premium valuation compared with its local rivals and global peers, reflecting its strong profitability and market position. But some analysts have cautioned that the high valuation leaves little room for disappointment.

Analysts at The Bull described the stock as having "a valuation multiple that demands near-flawless execution."

Economic outlook

Treasurer Jim Chalmers said on Friday that the government's upcoming mid-year budget update could show business investment more than doubling from the May budget forecast, adding more than A$50 billion over three years. Stronger business investment could support demand for bank lending.

Investors will watch Australia's upcoming inflation figures and the Reserve Bank's November policy decision for signals on interest rates, which have a direct impact on bank earnings and loan quality.

Commonwealth Bank is also expected to provide an update on its performance in the coming weeks, which will be closely watched for trends in lending growth, margins and bad debts.