Fed Not Bogey Man for 2-Year Rally: Strategist

The bears argue that when the Federal Reserve turns off the taps on the second round of quantitative easing the market, which today celebrates a two-year rally from the March 2009 lows, will fall sharply.

But one strategist does not think the Fed is the bogey man for stocks.

"We believe that the Fed will withdraw from bond purchases in a gradual manner while not triggering a sharp surge in bond yields," Edmund Shing, the head of European equity strategy at Barclays Capital said.

"The Fed remains focused on the growth portion of its balanced mandate. This has driven a surge in the Fed's balance sheet, with aggregate reserves now totaling over $1.2 trillion versus near-zero before the onset of quantitative easing," Shing added.

Shing and the economics team at Barclays Capital expect the Fed to complete its $600 billion bond-buying program by the end of the first half.

"The bottom line is this: while we believe that the employment picture is brightening enough in the US to discount any serious thought of extended Fed bond buying via a 'QE3' third round of quantitative easing, we do believe that the Fed will only withdraw from bond purchases in a gradual manner," they wrote in a research note.

"The aim will be to gradually ease back from these nonconventional monetary policies while not triggering a sharp surge in bond yields, which could have a direct knock-on effect to confidence in the fragile US housing market," they added.

"While this may present a moderate headwind to US and European equities, it is important not to over-exaggerate this risk, so long as the real yield does not jump sharply early in the second half," Shing and his team concluded.