Stocks shot out of the gate like a rocket Friday after the Federal Reserve, Treasury and SEC jumped in to triage the meltdown in the banking system with measures including a ban on short selling in financials.
Brokerages and banks roared higher, with Goldman Sachs, Merrill Lynch, Morgan Stanley, Wachovia and Washington Mutual all up 20 to 30 percent.
The S&P 500is up 2.5 percent and the Nasdaq is up about 2.2 percent. The CBOE Volatility Index, considered the best gauge of fear in the market, is still down but back above 30.
Veteran trader Art Cashin, the floor director at UBS, said he actually felt better heading into today's trading session after Thursday, Wall Street's best day in six years.
"I think yesterday was the most credible rally we’ve seen this year. It had that stampede effect that I’ve been looking for," Cashin told CNBC. However, he cautioned that today's rally is probably going to be exaggerated by 30 to 50 percent due to the ban on short selling.
Plus, contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire, a process known as quadruple witching, causing increased volatility in the market, according to analysts.
So, have we seen the bottom?
"Too early to say," Cashin said. "Watch the bank-lending rate -- that’s where the whole game’s played out in the next week."
The SEC temporarily banned short-selling of 799 financial stocks, effective today, to help boost investor confidence and protect any future victims of short sellers, who have been criticized in the demise of Bear Stearns, Lehman Brothers and AIG. This follows a similar move in the U.K. a day earlier. (See a full list of the 799 companies. Plus, cast your vote: What do you think of the ban?)
Meanwhile, Treasury Secretary Hank Paulson announced a $50 billion plan to help remove toxic mortgage assets from the books of financial firms and restore confidence in the financial system. Part two of that plan would be to ramp up the government's rescue of Fannie Mae and Freddie Mac more quickly, without Congress's approval.
And the Federal Reserve is taking steps to stabilize money-market funds whose asset values have fallen below $1 by extending loans to banks to buy those assets.
"This is a gigantic step forward, the only way to fix the crisis," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "Economy still a mess, but systemic risk way down," he said.
There was chatter about more Wall Street-Main Street pairings this week but the government's moves take pressure off of these firms to do a deal immediately.
Morgan Stanley said the government plan is a potential "game-changer" that puts them in a better bargaining position. The company, which had been in advanced merger talks with Wachovia Bank, is continuing to pursue its options, giving priority to remaining independent. Still, shares of Morgan Stanley and Wachovia Bank were up about 25 percent.
After this week's whirlwind that saw Lehman Brothers collapse and Merrill Lynch get bought by Bank of America, Morgan Stanley and Goldman Sachs are the last of the large, independent, U.S.-based investment banks. Both stocks were pummeled earlier this week amid concerns about the investment-bank model.
Washington Mutual shares jumped after a Wall Street Journal report suggested that Citigroup was considering making a bid for the bank, the largest U.S. savings and loan.
Insurers' woes continue, with Moody's saying it may downgrade ratings on bond insurersAmbac and MBIA by more than one notch because of increasing losses from subprime mortgage debt.
Asian stocks surged, closing between 3 and 9 percent up and European stock markets went through the roof, with the FTSE 8 percent higher. UK banks shot up 32 percent.