There is an investment adage that says, "Don't fight the Fed." Put simply, when the Fed is providing liquidity to the markets, it should be an overall positive for the stock market, and you should be invested. Historically, this meant investors should watch what the Fed is doing in terms of interest rate policy. Today, with the Fed already hacking the rate back to zero, investors have to look at quantitative easing and it is truly epic.
The street now expects the Fed to more than double the size of its balance sheet to $9-10 trillion in 2020. This is an incredible amount of liquidity being pumped into the market. The Fed is not only buying Treasuries and mortgage backed securities but have now moved onto corporate and municipal bonds.
Here is a chart illustrating the parabolic pace of Fed buying. With stay at home orders crushing demand, the Fed is pulling out all stops to inject money into the financial markets. In just 3 weeks, the Fed has bought over $1.5 trillion in assets. This already outpaces QE2 and QE3 combined!
This has helped the recent rally from the interim market bottom, but can the Fed help the stock market defy gravity? That remains to be seen. If the economy is shut down through the summer, is there any limit to the Fed balance sheet?