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The Henry resource test

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by Peter Switzer

Australian resource stocks and their concerned CEOs have their first test today with Wall Street strongly positive this morning. The action suggests that our market should head up and if resource share prices follow the expected trend, then Government ministers will be asking what they were whinging about?

However, if they don’t have a good day at the office then more question marks will be raised over the Rudd Government’s response to the Henry Tax Review. The Sunday afternoon crack at tax reform, with a small ‘r’, has seemingly backfired coinciding with a shocking poll in The Australian putting Labor’s popularity back to the level last seen when Kim Beazley led the party.

The best indicator for the Rudd/Henry effect on resource stocks will be Macarthur Coal, which fell 9.5 per cent yesterday! This company is a takeover target and has the big American Peabody Energy company targeting it for a takeover. Watch this share today as a real litmus test of the resource tax.

US stocks climb

Overnight, the Dow rose 143.22 points or 1.3 per cent to 11,151.83 and the S&P 500 added 15.57 points or 1.31 per cent to 1202.26.

So, what got the Yanks excited?

Basically it was good economics news and positive signs out of Europe on the Greece debt bailout plan.

As a good reflection of a market calming mood, the fear index dropped below 20 through the day and finished slightly above.

A standout result was the Institute for Supply Management report, which showed its manufacturing index went up to 60.4 in April from 59.6 in March. This is the best growth result in six years.

Oil also went over $US86 a barrel and that reflects a more positive economic outlook.

Meanwhile, Warren Buffett’s defence of Goldman Sachs was seen as a positive for financial stocks. However, he does have about $5 billion invested in the company and could be a tad biased. It still helped financial stocks.

Another notable indicator was consumer spending which rose for the sixth month on a trot.

Still a bull

Finally, one little market test wrapped up in a nursery rhyme should be tested this month. The ditty goes like this: "Sell in May and go away!"

History has shown that this trend has some significance and there have been some reasons to run from shares lately. However, I reckon the goods and the positives still outweigh the bads and the negatives. And there’s still a lot of cash on the sidelines, especially in the USA, which is attracting very low interest rates.

I remain a bull and that’s not bull!

For advice you can trust, contact Switzer Financial Services.

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Published on: Tuesday, May 04, 2010