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 fixed3.99%3.99%
15 yr fixed3.09%3.10%
5/1 ARM3.20%3.22%
30 yr refi4.00%4.08%
15 yr refi3.11%3.19%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,814.94 -2.96 -0.02%
Nasdaq 4,758.25 3.36 0.07%
S&P 500 2,067.03 -2.38 -0.12%
Treasuries 2.26 -0.05 -2.16%
Data as of 5:02pm ET
Company Price Change % Change
Apple Inc 117.60 -1.02 -0.86%
Bank of America Corp... 17.10 -0.08 -0.47%
Huntington Bancshare... 10.12 -0.06 -0.59%
Kinder Morgan Inc 40.75 -0.04 -0.10%
Ford Motor Co 15.68 0.01 0.06%
Data as of 4:05pm ET

Sections

Jet fuel prices are down about 18% since August, but don't expect a break in your air fare any time soon. More

Retailers are repeating Black Friday deals from year to year, and offering the same discounts at other times. More

Sales of iPads and other tablets are slumping badly in 2014, and won't likely be a big hit during the holidays as they were last year. More

Ever since the Ebola epidemic erupted in her hometown of Foya, Liberia, Deboriah Foko has been working with Doctors Without Borders to inform others about this deadly virus. Here are journal entries from a day in her life. More

Most stock quote data provided by BATS. Market indices 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.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.