End of QE2? No problem for stocks

chart_sp500_QE2_2.top.jpg By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney) -- By the end of the second quarter, the Fed's QE2 program, which has helped fuel a six-month stock rally, will come to an end. But that won't stop the momentum.

All but one of the investment strategists and money managers surveyed by CNNMoney agree that the conclusion of the Fed's second round of quantitative easing will have a limited impact on the stock market.

"The economic recovery is much stronger than most give it credit for, and so much of the talk about the end of QE2 is factored in already," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, whose forecasts puts the S&P 500 up another 6% by the end of the year.

Detrick added that although the Fed's bond buying program is coming to an end, the central bank will continue to support the recovery.

"[The Fed] has stated that they are going to do all they can to keep the economy moving," he said. "We still expect a strong second half of the year."

And most experts agree. While there has been a lot of chatter about inflation and rate hikes, the majority of money managers and strategists think the central bank will hold off on raising rates until 2012. There are even a few who think a rate increase won't come until 2013.

The Fed has held its benchmark interest rate between 0% and 0.25% since December 2008.

While stocks seem to be humming along, there's more uncertainty surrounding the post-QE2 bond market, said Matt King, chief investment officer at Bell Investment Advisors.

Just last month, Pimco's Total Return Fund (PTTRX) slashed its bond holdings to zero, partly due to the uncertainty over who would fill the Fed's role as the biggest buyer of U.S. government debt.

"Who is going to step in and replace the Fed?" asked King, adding, "An even better question is at what yield will other buyers come to the table?"

Most experts expect investors to continue steering away from bonds, largely due to the uncertainty but also due to the yields, which some say are far too low to offer up enough value.

If investors continue to shun the market, yields on the benchmark 10-year note could top 4% by year-end.

There was one contrarian who said the end of QE2 poses a threat to more than just the Treasury market and that there could even be a case for QE3.

The housing and jobs market remain in "awful" shape, said Donald Selkin, chief market strategist at National Securities. The lack of improvement in addition to the end of free liquidity may worry investors, and in turn, take the sails out of the stock market.

"Stocks have been very dependent on this stimulus, and it should be noted that when QE1 ended in March of last year, the market took a major dive in the May and June until QE2 was announced at the end of August," said Donald Selkin, chief market strategist at National Securities.

With that potential volatility, Selkin thinks stocks will only gain another 3% by the end of the year.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.20%4.27%
15 yr fixed3.27%3.21%
5/1 ARM3.53%3.38%
30 yr refi4.18%4.24%
15 yr refi3.26%3.20%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,131.97 100.83 0.59%
Nasdaq 4,552.76 33.86 0.75%
S&P 500 1,998.98 14.85 0.75%
Treasuries 2.59 -0.00 -0.08%
Data as of 8:20am ET
Company Price Change % Change
Apple Inc 100.86 -0.77 -0.76%
Bank of America Corp... 16.71 -0.03 -0.18%
Yahoo! Inc 42.71 0.16 0.38%
Alcoa Inc 16.16 -0.23 -1.40%
Facebook Inc 76.08 1.50 2.01%
Data as of Sep 16

Sections

When will the Fed raise rates? It all depends on whether the phrase 'considerable time' is or isn't in the Fed's statement. More

Things aren't looking good for Sony -- the Japanese company expects to lose billions of dollars this year, as the global smartphone race heats up. More

Y Combinator president Sam Altman is teaching a startup class at Stanford with Silicon Valley heavy hitters as guest lecturers. Bonus: All the videos will be available for free online. More

Occupy Wall Street offshoot Strike Debt says it has abolished nearly $4 million in private student loan debt for students who attended Everest College, part of Corinthian Colleges. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.