$SPY $Q

Fed chairs take office and the market crashes immediately!
Is this idea just an urban legend? Even though markets tend to test a new Fed chair’s limits and reaction function, sharp selloffs are more about coincidental macro timing and especially recency bias than an actual rule. Jerome Powell’s first day in office, when the market experienced historic chaos, especially burned this perception into modern investors’ minds. The foundation of this myth mainly comes from the Greenspan and Powell eras. Just two months after Alan Greenspan took office, the S&P 500 crashed more than 20% in a single day, and on the very day Powell was sworn in, the market witnessed the historic liquidation known as the Volatility Apocalypse. However, when we look at the first one month performance of Janet Yellen, Ben Bernanke, and Paul Volcker, it becomes very clear that markets do not automatically turn bearish just because a new Fed chair arrives. The market reacts much more to the macro cycle at that moment, valuation expansion such as P/E multiples, and liquidity conditions than to the identity of the chair. So the equation new Fed chair = stock market crash is not a statistical reality, but completely an urban legend. In fact, when I look at the first one-month market performance after the last five Fed chairs took office, Jerome Powell started on February 5, 2018, and although the market saw sharp volatility at first, one month later the S&P 500 was about 2.7% higher. After Janet Yellen took office on February 3, 2014, the market rose 6% in the first month, showing a strong recovery. During Ben Bernanke’s period, after February 1, 2006, the S&P 500 gained around 0.7% in the first month, staying flat but positive. The main negative example was Alan Greenspan, where after August 11, 1987, the market declined around 3.4% in the first month. After Paul Volcker took office on August 6, 1979, the market rose about 4.8% in the first month. This shows that the market does not automatically respond to a new Fed chair with selling; the real drivers are the macro cycle, liquidity conditions, valuation levels, and investor positioning at that time.