Powell has three days left before handing over to Walsh: How do US stocks perform in the short term after a change in Fed Chair?

Fed Chair Powell’s term will officially end on May 15, with Kevin Warsh taking over. The market is bracing for the new Chair’s monetary policy. This article examines historical data to analyze the short-term performance of the U.S. stock market during leadership transitions over the past half-century. (Context: Powell’s final press conference: Declaring he will "stay on but not retreat" to defend Fed independence; the 4 dissenting votes against easing within the Fed do not signal an imminent rate hike.) (Background: Who will influence the world’s most important interest rates? Bessent "seizes power" from Powell.) Fed Chair Powell presided over his final FOMC meeting late last month and will officially step down this week on May 15, with Kevin Warsh taking the helm. The market remains focused on the policy path the new Chair will take: he has previously publicly supported rate cuts, advocated for shrinking the Fed’s balance sheet, and questioned the Fed’s independence. With the U.S. stock market at historic highs, will Warsh’s appointment trigger a correction? This has become a core question on trading desks. Below, we review historical data to analyze the short-term performance of the U.S. stock market during leadership transitions over the past half-century. Volcker inherited an out-of-control inflationary environment from Carter (annual inflation rate exceeding 11%) and immediately initiated aggressive rate hikes upon taking office. The stock market’s initial reaction was relatively stable, but the real pain occurred about a year into his term—the bear market that began in January 1980, followed by the deep recession of 1981–1982, was the price of his "monetary prescription." However, over Volcker’s entire eight-year tenure, the S&P 500 gained 219.6%, making it one of the best-performing terms in history. Insight: When a new Chair’s policy stance has already been priced in by the market (Carter had made it clear he was looking for a hawk before Volcker took office), the impact at the time of the transition is limited. Greenspan may have had the worst "timing" of any Chair in history. He took office on August 11, raised the benchmark interest rate on September 4, and then experienced Black Monday on his 69th day in office (October 19), when the Dow plunged 22.6% in a single day. From this perspective, the maximum drawdown in his first three months was indeed staggering. However, there was no causal link between the Black Monday crash and Greenspan’s transition. In hindsight, the S&P 500 gained 284% over the nearly 20 years of Greenspan’s tenure. Insight: The most frequently cited historical case of a "market crash following a new Chair’s appointment" was actually a pure coincidence of timing. Bernanke’s succession was one of the smoothest in modern history. He inherited a bull market in progress from Greenspan, with a housing bubble that had yet to burst. The S&P 500 continued to rise in the first year of his term; the first wave of subprime mortgage pressure did not emerge until 18 months into his term, and the collapse of Lehman Brothers occurred two and a half years later. Deutsche Bank highlighted this "lag in pressure" pattern in a recent report. Insight: A Chair who takes over during a bear market is often mistakenly blamed for "causing" it, while a Chair who takes over during a bull market is often mistakenly credited with "extending" it. Short-term market trends often have little to do with the transition itself and more to do with the position in the economic cycle. Research from the CFA Institute points out that Yellen was the Chair for whom "the stock market had the most positive reaction and lowest volatility during her congressional testimonies" over the past 50 years. In the first six months after she took office, the S&P 500 was relatively stable. Although the market had already seen a correction (-3.5%) in January 2014 before she officially took office, it was quickly digested. Yellen’s "nothing happened" scenario is actually the most valuable case in this historical data; when a new Chair’s policy path is highly continuous with their predecessor (she worked with Bernanke for many years and held similar policy views), the market usually doesn't see much drama. Powell faced a correction immediately upon taking office, but this correction actually began at the end of January, reacting to the rapid rise in 10-year Treasury yields and the chain-reaction liquidation of volatility ETNs; it had little to do with him. Barclays calculated that his maximum