On May 22, Kevin Warsh was officially appointed Chair of the Federal Reserve. He takes over for Jerome Powell, who has held the spot since 2018. Warsh is the sixth Fed Chair to assume control since 1979. Preceding him:
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Paul Volcker (appointed Aug. 6, 1979)
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Alan Greenspan (appointed Aug 11, 1987)
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Ben Bernanke (appointed Feb. 1, 2006)
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Janet Yellen (appointed Feb. 3, 2014)
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Jerome Powell (appointed Feb. 5, 2018)
A new Fed Chair generally creates uncertainty. Given the lengthy terms that Chairs often serve, the market usually has a pretty good sense of their thinking and what to expect from them. A new Chair may have different priorities and views on the economy. It’s not out of the question that it could result in a policy pivot that catches the markets off guard.
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But while many investors may look at a new Fed Chair for guidance on how the markets might perform going forward, it’s just one of many factors influencing stock returns.
What the data shows
Let’s set the table first and look at how the S&P 500 (SNPINDEX: ^GSPC) did in the 12 months following each Fed Chair’s appointment.
|
Fed Chair |
Appointment Date |
S&P 500 Return (Next 12 Months) |
|---|---|---|
|
Paul Volcker |
Aug. 6, 1979 |
+16.5% |
|
Alan Greenspan |
Aug. 11, 1987 |
(21.2%) |
|
Ben Bernanke |
Feb. 1, 2006 |
+12.7% |
|
Janet Yellen |
Feb. 3, 2014 |
+17.7% |
|
Jerome Powell |
Feb. 5, 2018 |
+3.4% |
Data source: Yahoo! Finance.
It’s really a pretty mixed bag. More importantly, it’s the circumstances during these 12-month windows that really impacted returns. Volcker’s term started just as the stagflation-riddled 1970s were wrapping up. Early in 1980, however, a recession knocked about 17% off the S&P 500 before it came roaring back later in the year.
Greenspan’s term started about two months before the Black Monday crash. Bernanke’s term included an 8% pullback a few months after he took the leader’s seat, but the real bear market due to the financial crisis would come about two years later. Yellen’s first year was mostly a steady climb higher for stocks.
Nobody, however, arrived on the scene with a bang like Powell did. Feb. 5, 2018, was “Volmageddon,” the day when the CBOE Volatility Index, or VIX, suddenly spiked and the inverse volatility products that relied on low volatility for gains imploded. Some lost more than 80% of their value in a single day, and the S&P 500 fell more than 4%. Powell’s first year also included the Q4 2018 mini-bear market driven by European recession fears.
