The S&P/ASX 200 Index (ASX: XJO) concluded July with a notable rise of 4.2%, marking one of the strongest months of the year. Despite this impressive performance, National Australia Bank Ltd (ASX: NAB) shares exceeded even this positive trend.
At the beginning of July, NAB shares were priced at $36.23. By the end of the month, they had climbed to $38.58, reflecting a substantial increase of 6.49%. This performance is particularly significant given that NAB's annual dividend yield currently stands at 4.42%.
Several factors contributed to NAB’s robust performance. Although there were no major company announcements in July, there were noteworthy developments earlier in the month. NAB executives had recently purchased additional shares, which may have positively influenced investor sentiment. Additionally, the bank's aggressive share buyback program likely supported the increase in stock price.
NAB's strong July performance was consistent with the broader positive trend observed among ASX bank stocks. Westpac Banking Corp (ASX: ASX:WBC) experienced a significant 9.5% increase in its share price, reaching a multi-year high. Similarly, Commonwealth Bank of Australia (ASX: CBA) shares surged by 7.94%, setting several new record highs.
Looking ahead, the outlook for NAB shares may be more cautious. Despite the strong performance in July, there are indications that ASX bank stocks, including NAB, might be approaching a period of correction. Current valuations for these banks appear elevated, with concerns that prices may exceed the underlying value of the stocks. Forecasts suggest that earnings growth for the sector might slow down in FY25 and remain modest in FY26.
While this potential for a market correction could dampen the mood of investors, it is worth noting that the performance of bank stocks has often defied expectations in the past. For instance, Commonwealth Bank has continually reached new highs despite earlier predictions of underperformance.
The coming weeks will reveal whether NAB shares can maintain their upward trajectory or if a correction will occur. Investors will be closely watching how the stock performs through August and beyond.