Rambo Bernanke

Stocks turned lower during Thursday trading after a new jobless claims report released today cast a pall on a rally that began days ago.

At 12:13 pm ET, the Russell 2000 (NYSE:IWM) is down 3.37, or 0.81%, at 414.26, while the Dow is down 1.12%, at 7,402.71, and S&P 500 is down 0.99% at 786.51.

Stocks opened higher this morning on lingering investor enthusiasm over Wednesday’s news that the Fed is planning to pump $1 trillion into the economy. The good news failed to last long though as new jobless claims data this morning showed a higher-than-expected drop of 646,000, while continuing claims set a new record.

Small caps making double-digit gains this afternoon include dry-bulk shipper DryShips (Nasdaq:DRYS), which is up 22% after announcing a $630 million three-year contract from Petrobras. Energy companies are also rising today as oil is climbing back above $50 per barrel. James River Coal (Nasdaq:JRCC) is up 19% on lower-than-average volume, while Rex Energy Corp. (Nasdaq:REXX) is up over 27%.

Rambo Bernanke

On Wednesday, the FOMC voted unanimously to buy over $1 trillion dollars in U.S. Treasury bills, corporate bonds, mortgages and consumer debt.

Chief economist at Bank of New York Mellon Corp. called it a “Rambo Fed” move in a Bloomberg interview.

Bonds immediately rallied, with the 10-year note putting in the biggest one-day gain since 1962. Stocks rallied, too, which is a bit unusual. Bond and stock prices tend to move in opposite directions. When stocks appear risky, money goes into the safe haven of bonds, and vice versa. But these are strange times, and with the Fed taking unprecedented steps to ward off deflation and get lending moving again, it’s not that surprising that some old relationships are being tested.

Bernanke’s intent is clear – he wants to make sure interest rates stay low. Overnight interest rates are already zero. Any more easing and the Fed . . .

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