GSE takeover to spark stunning rise on open
Small-cap stocks are expected to open sharply higher, soaring in response to news over the weekend that the Treasury department will takeover operations at embattled government-sponsored enterprises Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE). The Russell 2000 (NYSE:IWM)was up some 3% in after-hours trading, which would translate to an opening near 740, compared with Friday’s close just below 719.
Stock markets around the world embraced the GSE takeover news, with Japan up 3.3%, Hong Kong up 4.2%, Taiwan up 5.5%, Australia up 3.9%, Singapore up 4.4%, South Korea up 5.2% and India up 3.1%
Financial stocks truly took flight on the GSE plan, with the nation’s number one bank, Citigroup (NYSE:C) rising some 9%, while the number two bank, Bank of America (NYSE:BAC) was up 8%. Also, American International Group (NYSE:AIG), climbed some 10%, setting the tone for what should be a wild morning for financial sector shares. There are a bevy of small-cap and mid-cap financial companies that stand to benefit today from the wave of confidence stemming from the GSE bailout news.
The U.S. dollar also climbed on the news, although the move was much less dramatic than what was seen in equities. The dollar pushed to fresh move highs against the euro, and was up about 0.2% on that currency; meanwhile, the buck was up about 0.7% versus the yen.
Even with the dollar up and the stock market in major rally mode, crude oil futures were up modestly overnight, climbing about $1 a barrel as the market braces for Hurricane Ike to spin through the Gulf of Mexico.
Looking at the chart, an opening push above 740 would enable the market to leapfrog several resistance points of note, leaving 742, 748 and 756 as the next key upside points to watch. It will be important for the market to hold up the opening gap in the first (and last) hour of trading today to validate the shift in market psychology.
