Cautious approach to be expected

Recent weeks have seen profit results from several high-profile companies including Commonwealth Bank, Wesfarmers, Qantas, Fortescue Metals and AMP as well as trading updates from Westpac and ANZ.

Broadly speaking, the results to date have been lacklustre, in many cases meeting analyst expectations but outlook statements have generally been weak or cautious.

The other news from the share market was the decision by the 'big four' banks to raise interest rates independently from the Reserve Bank last month.

They claimed their cost of funds had increased as a result of offshore borrowings costs related to the Eurozone crisis.

While the moves were well-flagged, it did little to soften the political and customer backlash.

Still in the banking sector, ANZ, Westpac and Macquarie Bank have announced staff reductions as they seek to cut costs and adjust to a period of lower credit growth, which appears well entrenched now.

While Australia's official unemployment rate fell to 5.1 per cent in January, it was widely expected to rise this year as non-resources exposed Australia continued to do it tough.

The Reserve Bank and Treasury forecast that unemployment would rise to 5.5 per cent this year.

Turning to Wesfarmers' results, half-year sales increased 5.7 per cent to $29.674 billion compared with the same period last year of $28.074 billion, and the dividend increased by 7.5 per cent to 70 cents per share, up from 65 cents per share.

Pre-tax profit was $1.673 billion versus $1.64 billion from the same period last year.

Competition and the focus on driving customer growth resulted in earnings growth in Coles supermarkets being weaker than expected.

Bunnings continues to perform well but may face some challenges with the Woolworths-owned Masters recently starting operations in metropolitan Perth.

As for the markets generally, many investors have been asking why the Australian market has not been advancing in tandem with the United States share market?

So far this calendar year, the S&P/ASX 200 Index has gained 4.9 per cent compared with an 8.3 per cent rally in the US S&P 500 Index.

It can be said that Australia's corporate earnings outlook, persistently high dollar (impacting exporters), declining commodity prices, rising unemployment and strong dependence on the China growth story - which has moderated in recent times - have been contributing to an overall lower expectation level and underperformance of the share market.

However, overall price-earnings ratios are still reasonable (10.8 x 2013 earnings), so there is room for the share market to move higher should the macro-economic environment continue to improve.

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