Powell hands over to Walsh: How do US stocks perform in the short term after a Fed Chair transition?

Fed Chair Powell has officially stepped down, with Kevin Warsh taking over. Markets are watching closely for the new chair's monetary policy. This article reviews historical data, compiling the short-term US stock market performance during chair transitions over the past half-century. (Recap: Powell's final press conference declares "stepping down but not retreating," defending Fed independence — the 4 dissenting votes against easing within the Fed do not mean rate hikes are coming) (Background: Who will influence the world's most important interest rate? Bessent "seizes power" from Powell) Fed Chair Powell presided over his final FOMC meeting late last month, and officially stepped down last week on May 15, with Kevin Warsh taking the oath of office at the White House this Friday (22) to take over. Markets continue to focus on the new chair's policy direction after taking office: he has publicly supported rate cuts in the past, advocated shrinking the Fed's balance sheet, and questioned Fed independence. With US stocks at historic highs, will Warsh's inauguration trigger a wave of corrections? This has become the core question on trading desks. Below we review historical data, compiling the short-term US stock market performance during each chair transition over the past half-century. Volcker inherited an out-of-control inflation environment from Carter (annual inflation exceeding 11%), and immediately launched aggressive rate hikes upon taking office. The stock market reaction was actually relatively calm in the first few months. The real pain occurred about 1 year into his term — the bear market starting January 1980, and the subsequent deep recession of 1981-1982, were the cost of his "monetary medicine." But over Volcker's entire eight-year term, the S&P 500 accumulated a gain of 219.6%, one of the second-best chair tenures in history. Takeaway: When a new chair's policy orientation has been priced in by the market in advance (Carter had already made clear before Volcker's appointment that he wanted a hawk), the impact at the moment of succession is actually limited. Greenspan may be the chair with the worst "timing of inauguration" in history. He took office on August 11, raised the benchmark rate on September 4, and then on the 69th day after taking office (October 19) encountered Black Monday, with the Dow plunging 22.6% in a single day. From this perspective, his maximum drawdown in the first 3 months was indeed quite stunning. But the cause of Black Monday had no causal relationship with Greenspan's succession. In hindsight, over Greenspan's nearly 20-year term that followed, the S&P accumulated a gain of 284%. Takeaway: The most frequently cited historical case of "stock crash after new chair takes office" is actually a pure coincidence of timing. Bernanke's succession was one of the smoothest in modern times. He inherited from Greenspan an ongoing bull market in an environment where the housing bubble had not yet burst. In the first year after taking office, the S&P continued to rise, and the first wave of subprime pressure only surfaced 18 months after he took office, with Lehman Brothers' collapse coming 2.5 years later. Deutsche Bank specifically highlighted this "pressure lag" pattern in a recent report. Takeaway: Chairs who take over during bear markets are mistakenly perceived as "causing" the bear market, while chairs who take over during bull markets are mistakenly perceived as "extending" the bull market. Short-term market movements often have little to do with the succession itself, and more to do with the cyclical position at the time of takeover. Research from the CFA Institute points out that Yellen is the chair in the past 50 years to whom "the stock market has reacted most positively and with the lowest volatility to her Congressional testimony during her tenure as chair." In the first 6 months after she took over, the S&P moved relatively smoothly. Although the stock market saw a wave of corrections (-3.5%) in January 2014 before she officially took office, it was quickly digested. Yellen's "nothing happened" is actually the most worthwhile reference case in this historical data. When the new chair's policy line is highly continuous with the predecessor (she worked with Bernanke for many years and held similar policy views), the market often doesn't have much drama. Powell encountered a wave of corrections immediately upon succession, but this correction actually began in late January, as a reaction to the rapid rise of 10-year yields and the chain blowup of volatility ETNs — not much to do with him. Barclays calculated that his maximum drawdown in the first year was close to -20% (mainly the Christmas Eve massacre in Q4 2018), but point-to-point, he was actually only down 1.3% in his first year. Takeaway: Powell's case demonstrates the chasm between "maximum drawdown" and "cumulative return": you could easily have been "at one point" 20% in the red on paper in the first year, only to end up roughly flat. The table below takes the closing price of the last trading day before each of the five chairs took office as the starting point, calculating cumulative returns 1 month, 3 months, 6 months, and 12 months later, and listing the peak-to-trough maximum drawdown of the S&P 500 during those periods. Several observations can be drawn from the table: First, the 3-month average of −5% is almost entirely contributed by Greenspan's single case. Excluding 1987, the remaining four out of five have an average return at the 3-month mark that flips positive to +0.3%. Second, the win rate at 1 month is actually close to 50-50. Volcker, Bernanke, and Yellen all saw small gains, while Greenspan and Powell saw small losses. Third, differences in maximum drawdown and time. Within Powell's first 12 months in office, the market "at one point" fell nearly 20%, but the year-end point-to-point figure was only down 0.9%. If you focus too much on max drawdown when reading statistical reports, you may misjudge the direction. Back to the present. Warsh is about to take over an environment surprisingly similar to Bernanke's succession in 2006: the S&P 500 at a historic high, extreme market concentration (the seven largest tech stocks account for an index weight close to a historical record), rising federal government deficit pressure, and unprecedented politicization of the Fed independence issue. Several special risk points worth incorporating into the analytical framework: First, the policy continuity between Warsh and Powell is lower than in previous transitions. Yellen→Powell was a succession within the same faction, and Bernanke→Yellen was even more seamless; but Warsh's public stance differs from Powell on rate paths, balance sheet size, and relations with the executive branch, adding further uncertainty. Second, the possibility of a "shadow chair" is an arrangement unprecedented in modern central banking history. In the coming months, the composition of the Fed Board of Governors will include multiple Trump appointees. This uncertainty in the power transition may not be quantifiable through historical backtesting. Third, the starting valuation and market concentration create an environment with "less room for error." Historically, the kind of smooth succession seen with Yellen was built on a foundation of policy continuity + reasonable valuations + dispersed market structure; the 2026 conditions fail to meet all three. For traders, the next signals worth tracking are these three: - The policy tone of the first FOMC meeting he presides over (June 16-17) - His specific statements on Fed independence - And whether he will actually accommodate Trump's pressure for rate cuts and turn dovish ahead of schedule The signal strength of these three matters will determine the policy room for short-term markets.