End of QE2 has some fearing a fall in June

Associated Press

NEW YORK

Could the financial markets be heading for a June swoon?

The answer likely hinges on what happens after the Federal Reserve’s $600 billion effort to boost the economy expires. Some investors warn that the end of the program, known as QE2, will upend the stock market and push other markets in unexpected directions.

Under QE2, the Fed buys Treasurys from investors who can then put the money in stocks and other investments. Economists call it quantitative easing, and it is the second time the Fed has used the tactic.

Since last August, when Fed Chairman Ben Bernanke outlined the plan, the Standard & Poor’s 500 index has gained 26 percent. Many also say it’s partly to blame for rising commodity prices on everything from silver to cotton.

“It’s the most important factor that explains markets the way they are now,” says David Rolley, co-head of global fixed income at the fund manager Loomis Sayles. “So the most important question is what happens when QE2 stops?”

Ask investors and you get a variety of opinions. Bill Gross, manager of the world’s largest mutual fund at Pimco, fears the worst. Take away the largest buyer of Treasurys and, he says, their prices are likely to fall and long-term interest rates likely to rise.