Stock Market Information

It looks like voters aren’t the only ones predicting change as the presidential election voting kicks off. Wall Street, for it’s part, is also enjoying an election day rally today, looking past the recent economic data that’s been a bit doom and gloom and hoping to put the uncertainty of the upcoming election behind them. At present, the Dow is up about 300 points, and other indexes are up over 2 percent.

Of course, judging by recent volatility, it’s still much too early in the day to decide whether this rally has legs. I’m also curious to find out how the markets will react to the winner of the presidential election. Although historically speaking Democrats are better for the economy in the long term, Democrating nominees tend to cause downturns in the short term in the market, likely due to the fear of increased regulation and government intervention. Although given the current slew of government take overs and bailouts, I’m sure that’s a muted fear at this point.

Some analysts, like Matt King, chief investment officer of Bell Investment Advisors, sounded particularly optimistic:

“It’s pretty typical of how bear markets end, “The stock market recovers well ahead of the economy.”

Let’s hope so.

With the ban of short selling on 800 financial stocks and the Federal Reserve’s efforts to provide funds for banks across the nation, many in the industry are wondering what that means exactly for the future of banks and why the government didn’t step in sooner. Lehman brothers in particular, has to be wondering why the Fed didn’t step in and prevent them from going on. Here are a number of considerations from a recent article at Yahoo! Finance

• Will Merrill Lynch try to get out of its agreement with Bank of America?
• Does Morgan Stanley proceed with its talks with Wachovia (and others)?
• Does Washington Mutual still need a buyer?
• Does Lehman’s Dick Fuld have a right to be bitter this government action didn’t come a week sooner?

It also means that a number of buyout offers that were being considered previously may no longer happen. Does Merril Lynch really need to sell to BAC if they can get the funding they need from the Fed? It’s unlikely that they’ll be able to back out of the deal of course, though there is a termination clause of some kind in the purchase deal. The Fed could also help struggling Washington Mutual at some point along the way.

Well it looks like Uncle Sam is pulling out all the stops in their efforts to revive the economy and bring a number of financial institutions back from the brink of bankruptcy. The markets for their part, shot up today, which thus far has clocked a gain of more than 785 points over the last two days.

The government announced that they would be placing a ban on short selling over 800 financial stocks until the situation was normalized. This has prompted a number of investors and institutions to cover their shorts, so there’s been huge gains in financials like Bank of America, which is up over 20% so far today.

In addition, the Federal Reserve announced that they would be creating a new agency to handle the bad debts currently on the books of financial banks and other firms across the nation. The cost was staggering, estimated in hundreds of billions of dollars. All told, the government could end up spending over a trillion dollars for the bail out, including those it has already aided like AIG and Freddie Mac and Fannie Mae. In the interim though, the markets are pleased.

In addition the Federal Reserve also said it would expand its emergency lending to let commercial banks finance purchased of asset backed paper with money market funds. The Fed will also be purchasing short term obligations issued by Fannie Mae, Freddie Mac, and also Federal Home Loan Banks.