The Australian sharemarket is a sea of red today.
Following on from a night to forget for international equity markets, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has fallen in spectacular fashion, dropping by as much as 110.9 points or 1.9% to hit a low of 5715.6 points early in the session.
The decline can partially be attributed to the Reserve Bank of Australia's decision on interest rates yesterday afternoon. Although investors got what they wanted in that the RBA slashed rates to a new low of 2%, the comments (or lack thereof) made by the RBA suggested that investors should not expect the official cash rate to fall any further.
Falling interest rates have been a key force behind the Australian sharemarket's rally in recent years, and investors are piling out of the country's biggest dividend payers as a result. Many of these companies have become wildly overpriced so investors are likely taking their profits before others choose to do the same.
Telstra Corporation Ltd (ASX: TLS), for instance, is down 1.4% at $6.29, while Wesfarmers Ltd (ASX: WES) and Insurance Australia Group Ltd (ASX: IAG) have fallen 1% each.
However, the major catalyst behind today's bloodshed appears to be the disappointing earnings results from two of Australia's biggest and most beloved corporations – Woolworths Limited (ASX: WOW) and Commonwealth Bank of Australia (ASX: CBA).
Woolworths reported a 1.6% decline in overall group sales for the three-month period ended 31 March 2015, weighed down by its petrol division and lacklustre sales growth from its Food and Liquor division. The stock was trading 4% lower around midday after having fallen by as much as 4.2% earlier in the session.
Commonwealth Bank also provided an update on its third-quarter operations, reporting a net profit of $2.2 billion for the quarter – down from $2.3 billion in the same period last year. Aside from the dip in profits, investors are likely also concerned about the lack of detail provided in the update which suggest conditions may be worse for the major banks than first thought.
While Commonwealth Bank's shares retreated 4.1%, Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) also plunged 1.9%, 1.6% and 0.4% respectively.
For more than three years, the banks and other high-yield dividend stocks have been the go-to companies for investors, but days like these remind you that investing in a stock and hoping the market will automatically carry it higher can be a dangerous strategy to employ.
