Financial stocks jump in pre-market trading.
It is now official in the U.S.: short selling has been banned on 799 financial stocks until October 2, at which point the plan will be reviewed. The ban will not extend beyond 30 days, says the SEC, according to MarketWatch.
The potential for a move to ban short selling has been making headlines for days now, and yesterday the U.K. Financial Services Authority took the first step when it enacted its own ban. Now, in the U.S., a similar step has been taken in an effort to curb the precipitous decline in the share prices of major financial institutions such as Morgan Stanley (NYSE: MS, Stock Forum), Goldman Sachs (NYSE: GS, Stock Forum) and Washington Mutual (NYSE: WM, Stock Forum).
Understandably, the move has put the pedal to the medal on a rally in financial stocks. MarketWatch has pre-market trading levels for a number of companies up by a very healthy amount: Morgan Stanley up 33%, Goldman up 25%, WaMu up 44%, and even AIG (NYSE: AIG, Stock Forum) is up 35%, all as of 8:00am EST.
At the time of this writing, it is unclear what the move means for investors with open short positions, but it would be fair to say that many will be looking to get out as soon as possible, which could mean that the rally in financials is due to a massive short squeeze rather than to investors piling back into the long side. Many are looking at the unprecedented moves taken by the federal government recently as signifiers of a bottom, but only time will tell if today’s rally has the legs to carry forward in the weeks and months to come.
In any case, today will make for some interesting market moves.
