Select financials moved midday: Citi up 7 percent, Fannie Mae up 13 percent, Freddie Mac up 16 percent, AIG up 16 percent.
The one thing they all have in common: big government ownership of their shares. I have heard vague rumors that the government may attempt to restrict short selling in names that they own.
This makes little sense, since the government has already had a poor experience with restricting short sales in financials.
Also, note that Citi will likely be floating a large preferred offering, likely tonight, which would account for the heavy volume, as arbitragers become involved. Talk is it will yield 8.875 percent, size uncertain.
At an informal meeting of about 15 hedge fund traders that I attended last night, the tone was notably more positive than a couple months before. Several traders noted that companies they cover or trade had been giving more positive signals recently:
1) earnings were improving across the board, but many traders worried that companies will be adding to expenses — in the form of higher salaries, higher costs — which will reduce the impact of the bottom line.
2) Several noted that retail sales and loan growth would be key indicators. Strong February retail sales was a topic of discussion; now it has to be followed through with consumer loan growth to indicate demand is truly expanding.
3) The key sector are financials. The second quarter will be about financial guidance. Financials are expected to dramatically improve earnings in 2010 on reduced loan losses and improving loan growth.
Indeed, analysts have raised earnings for the S&P 500 to almost $80 for 2010, much of this is predicated on a big increase in bank earnings.