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Can the Bernanke-Fueled Rally Last?

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A correction could be on its way for equity markets despite the sigh of relief from markets Tuesday, an expert told CNBC a day after the chairman of the Federal Reserve said easy monetary policy would remain in place for now.

Ana Armstrong, CEO of Armstrong Investment Managers, told CNBC that a "near-term consolidation of equity markets" should be expected.

"We thought that the tail risk of Europe had reduced quite significantly but this [Italian election result] adds a new point to the agenda. Borrowing costs are going to be increasing and that will cause further volatility spikes," she said.

Speaking before the Senate Banking Committee Bernanke offered a strong defense of his monetary policy, saying that his inflation record –one of the biggest risks associated with monetary easing - was "one of the best of any Federal Reserve chairman in the post-war period – or at least one of the best."

He added that the stimulus measures would unwind at "an appropriate time." In the past he has said that the bond buying program would be curtailed once the labor market showed significant improvement.

Following Bernanke's comments, U.S.stocks recovered from one of the worst drops of the year to date. That came when elections in Italy resulted in an impasse which spooked global equity markets. Investors feared a flare-up of the European debt crisis and months of political wrangling in the country.

Armstrong agreed that continuing with quantitative easing was right as stopping now would be premature and potentially damaging.

"The growth is coming back and pulling the plug out now would be damaging. The U.S. equity markets sold off in the spring in each of the last three years so we can barely say that QE is boosting the rally,"Armstrong said.

Lars Steffensen executive managing partner at Ebullio Capital Management disagreed that a retreat was imminent and said it was liquidity that had driven the markets in recent weeks and this would continue because there was no alternative.

"At the moment the money is being pushed into play because as long as the Fed trends $80 billion a month what else are you going to do with your money? Put [it] where there's yield," Steffensen said.

Michael Browne, fund manager at Martin Currie went further in dismissing the authenticity of the current "rally" suggesting it was happening against a backdrop of negative inflows into equities.

"The data I have is that last year there was a [significant]outflow from equities, mostly U.S., last year and that hasn't been returned.There's been no cash flow to equities in the last twelve months indeed there has been cash out," Browne said. He added "there is no evidence cash is moving into equities."

Bernanke will testify again later Wednesday.

By CNBC's Shai Ahmed; Follow Her on Twitter @shaicnbc

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