The decision by the Reserve Bank of Australia (RBA) to cut official interest rates last week has fired up sharemarkets, but investors need to play close attention to the reporting season which is underway, says David Bryant, chief executive officer of Australian Unity Investments.
"Markets are incredibly volatile at the moment – shares, currencies, oil and other commodities are all over the place. Investors are looking for direction in the sharemarket, which is very unpredictable, and there is a lot of uncertainty around.
"We are seeing movements in different markets of two or three percent a day, and sometimes even five percent or more, and even though we have seen daily rises in local equities markets over the last week, investors are likely to react badly to any adverse, or even unexpected, news.
"But valuations are getting stretched and the RBA decision last Tuesday could have the unwelcome effect of causing asset prices to balloon.
"All of this chopping and changing makes it difficult for investors to see past the volatility, and make sensible long-term decisions for their portfolio.
"Like the RBA, I’m keen to see what the effect of the rate cut will actually be," he said.
Mr Bryant added that events overseas are also causing uncertainty for investors, and leading to a lack of confidence in other markets.
"The stand-off between the new Greek government and the European Central Bank is creating tension, yet offsetting this the US has shown strong growth in recent months, with extraordinarily solid payroll and jobless data out last week.
"With strong growth in employment, and progressively lower weekly jobless claims, there is plenty of positive news which eventually will help stabilize a lot of markets. The only negative on the horizon in the US, for equities markets at least, will be the size and timing of rate increases.
"Domestically, reporting season has kicked off and investors should play close attention to company results and what the real story is behind some of these outcomes.
"So given where valuations are presently at, the market is likely to react poorly to any bad news or surprises, which could then weigh heavily on the market for some time, regardless of any future action by the RBA," Mr Bryant said.