Small caps surge on the opening
Small-cap stocks surged almost 5% Friday morning on reports that the federal government will attempt to create a new bailout plan to help ease the credit burden on banks. At 9:48 am ET, the Russell 2000 (NYSE:IWM) was up 34.61, or 4.78%, at 758.29.
Details of the proposed bailout plan remain unclear, but it seems likely the government is moving toward a solution very similar to the creation of the Resolution Trust Company that Congress setup during the Savings and Loan crisis of the 1980s.
In another startling announcement made this morning, the federal government is going to guarantee the asset value of money market funds. This move is a preemptive strike intended to prevent a potential run on money market funds that seemed a real possibility when news broke on Wednesday that the Reserve Primary Fund, one of the nation’s largest funds, had its net asset value drop below $1 per share.
To further calm the markets the Securities and Exchange Commission issued a temporary ban on short sales of 799 financial stocks, a move against traders who have sought to profit from the financial crisis by betting against bank shares.
Financial stocks took to the news like a kid to candy, with Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) surging 19.6% and 16%, respectively.
About the Author
Crystal D. Vogt is Managing Editor at SmallCapInvestor.com.
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