The Australian banking sector has just taken a beating and NAB (ASX: NAB) stole the spotlight for all the wrong reasons, plunging over 8 per cent to a six-month low after delivering a first-quarter earnings report that fell flat. But it wasn’t just NAB—Westpac (ASX: WBC) and ANZ (ASX: ANZ) dropped in sympathy, despite not even reporting yet, while Commonwealth Bank (ASX: CBA) couldn’t escape the sell-off either, even though it’s held up better than the rest.

Is the pullback an overdue market correction?

So, is this an early warning sign of a deeper crisis, or just a long-overdue market correction?

For the past year, the big banks have been riding high, lavished with investor love thanks to juicy dividends and rock-solid balance sheets. But with valuations stretched by soaring share prices, any sign of weakness in earnings was bound to trigger a sharp reaction. That doesn’t necessarily spell disaster, though—here’s why.

The broader uptrend remains intact, even if further downside is possible in the near term. For patient investors, this pullback could present an opportunity to re-enter at more attractive levels later in the year.

Which bank is bucking the system?

Amid the turmoil, one bank is bucking the trend. Judo Bank (ASX: JDO) surged 8.5 per cent after posting a staggering 70 per cent increase in first-half net profit. Strong lending margins and upbeat guidance have set Judo apart in an otherwise battered sector.

So, is this market shake-up a warning sign or a golden opportunity? If history has taught us anything, it’s that when fear takes hold, smart money isn’t far behind.

What are the best and worst-performing sectors last week?

The best-performing sectors included Communication Services, up 1.62 per cent, followed by Utilities, up 1.14 per cent and Consumer Staples, up 0.89 per cent. The worst-performing sectors included Financials, down 7.49 per cent, followed by Energy, down 3.98 per cent and Consumer Discretionary, down 2.95 per cent. 

The best performing stocks in the ASX top 100 included A2 Milk, up 30.59 per cent, followed by Telix Pharmaceuticals, up 11.23 per cent and Charter Hall Group, up 10.25 per cent. The worst-performing stocks included Bendigo & Adelaide Bank, down 18.55 per cent, followed by Mineral Resources, down 16.24 per cent, and National Australia Bank, down 14.42 per cent.

What's next for the Australian stock market?

The All Ordinaries endured a tough week, sliding more than two and a half per cent in a broad-market sell-off. Financials led the decline, tumbling over seven per cent, but they weren’t the only ones under pressure—materials and energy stocks also struggled as reporting season added to market volatility. The question now is whether this signals a deeper downturn or simply a routine pullback.

Context is key. This isn’t the first time the market has taken a hit, and it won’t be the last. Take the week ending 20 December 2024, when the index dropped 2.73 per cent, or the plunge in the week ending 9 August 2024, when the market fell over 4 per cent before recovering slightly to close the week down 2.2 per cent. These fluctuations are part of the market’s natural rhythm.

Stepping back to the bigger picture, the long-term uptrend remains intact. Since November 2023, the All Ords has respected a solid trendline, and despite this week’s dip, support remains unbroken. The 8,500 level is key—if buyers' step in there, the trend should hold as it has since December 2024.

With reporting season in full swing, patience is your best ally. Short-term volatility can cloud judgment, and reacting impulsively often leads to regret. Let the dust settle and stay focused on the broader trend. The market may have taken a hit, but the underlying strength remains—and that’s what matters in the long run.

For now, good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.