The non-believer’s in the impressive rally in stocks from the mid-March lows — in the face of absolutely horrific U.S. economic data and first quarter earnings reports at the hands of the coronavirus pandemic — have likely forgotten one vital investing lesson formed during the Great Recession.

Don’t fight the stock price-boosting powers of the Federal Reserve.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“One of the most important rules is not to fight the Fed. It has established credibility on the do whatever it takes front with $3 trillion of balance sheet expansion. My partners in fixed income believe the balance sheet [the Fed’s] will go from 20% at the start of this year to 40% at the end of the year,” explained Goldman Sachs Asset Management’s co-head of equities Katie Koch on Yahoo Finance’s The First Trade.” data-reactid=”18″>“One of the most important rules is not to fight the Fed. It has established credibility on the do whatever it takes front with $3 trillion of balance sheet expansion. My partners in fixed income believe the balance sheet [the Fed’s] will go from 20% at the start of this year to 40% at the end of the year,” explained Goldman Sachs Asset Management’s co-head of equities Katie Koch on Yahoo Finance’s The First Trade.

Koch continued, “We do have a real economic challenge here. We have lost in the last five weeks, the jobs equivalent to the entire size of the Australian population. In the interim, the Fed is reducing the risk for equity markets.”

US Federal Reserve Chairman Jerome Powell gives a press briefing after the surprise announcement the FED will cut interest rates on March 3, 2020 in Washington,DC. - The US Federal Reserve announced an emergency rate cut Tuesday, responding to the growing economic risk posed by the coronavirus epidemic and giving President Donald Trump the stimulus he has called for. In a unanimous decision, the Fed's policy-setting committee slashed its key interest rate by a half point to a range of 1.0-1.25. (Photo by Eric BARADAT / AFP) (Photo by ERIC BARADAT/AFP via Getty Images)US Federal Reserve Chairman Jerome Powell gives a press briefing after the surprise announcement the FED will cut interest rates on March 3, 2020 in Washington,DC. - The US Federal Reserve announced an emergency rate cut Tuesday, responding to the growing economic risk posed by the coronavirus epidemic and giving President Donald Trump the stimulus he has called for. In a unanimous decision, the Fed's policy-setting committee slashed its key interest rate by a half point to a range of 1.0-1.25. (Photo by Eric BARADAT / AFP) (Photo by ERIC BARADAT/AFP via Getty Images)
US Federal Reserve Chairman Jerome Powell gives a press briefing after the surprise announcement the FED will cut interest rates on March 3, 2020 in Washington,DC. (Photo by Eric BARADAT / AFP) (Photo by ERIC BARADAT/AFP via Getty Images)

To Koch’s point, the Fed has worked its magic yet again on stock prices amidst an incredibly difficult time for the U.S. economy.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="In March, the Jerome Powell-led Fed slashed interest rates to 0% in a bid to stabilize the economy (and yes, probably stock prices too). Initially, the action was met with more selling by investors concerned with rapid job loss because of the health crisis. Seeing as it needed to take greater action to ease financial conditions, the Fed unveiled an unprecedented $2.3 trillion lending program on April 9.” data-reactid=”32″>In March, the Jerome Powell-led Fed slashed interest rates to 0% in a bid to stabilize the economy (and yes, probably stock prices too). Initially, the action was met with more selling by investors concerned with rapid job loss because of the health crisis. Seeing as it needed to take greater action to ease financial conditions, the Fed unveiled an unprecedented $2.3 trillion lending program on April 9.

All of the actions, strategists say, have provided comfort to investors worried about sizable losses as businesses stay shut and the recovery in China sputters along. Meanwhile, rock bottom borrowing costs have created the return of healthy risk appetite by hedge funds and other institutions in beat up areas of the market. It has also lit a fire under big-cap tech stocks such as Microsoft and Netflix — the old money-making go-to trades of 2019.

Since the market bottom on March 23, the Dow Jones Industrial Average has climbed 26%, the S&P 500 has surged 24% and the Nasdaq Composite has added 26%.

“Stay invested in equity markets. The Fed is providing a floor here,” Koch adds.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.” data-reactid=”36″>Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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