Powell hands over to Waller: After each Federal Reserve Chair changes, how will the U.S. stock market perform in the short term?

The Federal Reserve Chair Powell has officially stepped down, with Kevin Warsh taking over. The market is closely watching the new chair’s monetary policy stance: he has previously publicly supported rate cuts, advocated reducing the Fed’s balance sheet, and has questioned Fed independence. With US stocks at historic highs, will Warsh’s appointment trigger a correction? This has become a key question on trading desks.

What happened three months after the tenure of five modern chairs?

Below, we analyze historical data, summarizing the short-term stock market trends over the past nearly half a century whenever a new chair took office.

Paul Volcker (August 1979)

Volcker inherited an out-of-control inflation environment (annual inflation over 11%) from Carter, and immediately launched aggressive rate hikes.

Initially, the stock market responded relatively calmly in the first few months. The real pain came about a year into his tenure — the bear market starting in January 1980, and the subsequent deep recession from 1981 to 1982, were the costs of his “monetary medicine.” However, over his overall eight-year term, the S&P 500 gained 219.6%, making it one of the second-best chairmanships in history.

Insight: When the new chair’s policy orientation has already been priced in by the market (Carter had clearly signaled a hawkish stance before Volcker took office), the initial shock of the transition tends to be limited.

Alan Greenspan (August 11, 1987)

Greenspan might be the worst “timing” chair in history. He took office on August 11, and by September 4, had already raised the benchmark interest rate. Then, on the 69th day after taking office (October 19), the Dow experienced Black Monday, with a 22.6% single-day plunge. From this perspective, his first three months’ largest correction was indeed very shocking.

But the cause of Black Monday was unrelated to Greenspan’s succession. Looking back, Greenspan’s nearly 20-year tenure afterward saw the S&P 500 accumulate a 284% rise.

Insight: The most frequently cited case of “stock market crash after a new chair’s appointment” is actually a pure coincidence of timing.

Ben Bernanke (February 1, 2006)

Bernanke’s succession was one of the smoothest in modern times. He inherited a bull market environment with a housing bubble that had not yet burst. In the first year after taking office, the S&P continued to rise. The first wave of mortgage pressures only emerged 18 months into his tenure, and Lehman Brothers’ collapse happened two and a half years later. Deutsche Bank recently emphasized this “lagged pressure” pattern in a report.

Insight: Chairs who take over during a bear market are often mistaken for “causing” the bear, while those who succeed during a bull market are seen as “continuing” it. Short-term market movements are more related to the cycle position at the time of succession than to the act itself.

Janet Yellen (February 3, 2014)

Research from the CFA Institute indicates that Yellen, over the past 50 years, was the chair whose testimony to Congress elicited the most positive stock market reactions with the lowest volatility. In the first six months after her appointment, the S&P was relatively stable. Although the market had already corrected -3.5% in January 2014 before her official start, it was quickly digested.

Yellen’s “nothing happened” scenario is a notable case in this historical analysis, as her policy approach was highly aligned with her predecessor (she worked closely with Bernanke), leading to minimal market disruption.

Jerome Powell (February 5, 2018)

Powell faced a correction immediately after taking office, but this correction actually began at the end of January, reacting to the rapid rise in the 10-year yield and a series of volatility ETN liquidations, rather than his policies.

Barclays’ statistics show that his maximum drawdown in the first year was close to -20% (mainly due to the Christmas Eve massacre in Q4 2018), but on a point-to-point basis, he only lost 1.3% in his first year.

Insight: Powell’s case illustrates the gap between “maximum drawdown” and “cumulative return”: it’s easy to see a 20% loss at some point in the first year, but the final result can be nearly flat.

Stock market performance of the five chairs after their succession

The table below uses the closing price on the last trading day before each chair’s appointment as the starting point, and calculates the cumulative returns after 1 month, 3 months, 6 months, and 12 months, along with the maximum peak-to-trough drawdown during that period.

| Chair | | --- | | Date of appointment | | 1 month | | 3 months | | 6 months | | 12 months | | Max drawdown within 12 months | | --- | --- | --- | --- | --- | --- | --- | | Paul Volcker | | 1979-08-06 | | +2.7% | | -2.7% | | +11.2% | | +16.8% | | -17.1% | | Alan Greenspan | | 1987-08-11 | | -1.8% | | -26.3% | | -22.0% | | -19.9% | | -33.5% | | Ben Bernanke | | 2006-02-01 | | +0.9% | | +2.0% | | -0.7% | | +13.0% | | -7.7% | | Janet Yellen | | 2014-02-03 | | +3.5% | | +5.5% | | +8.0% | | +15.0% | | -7.4% | | Jerome Powell | | 2018-02-05 | | -1.5% | | -3.6% | | +2.8% | | -0.9% | | -19.8% | | Average of five | | | | +0.8% | | -5.0% | | -0.1% | | +4.8% | | -17.1% | | Excluding 1987 average | | | | +1.4% | | +0.3% | | +5.3% | | +11.0% | | -13.0% |

Some observations from the table:

First, the −5% average over three months is almost entirely contributed by Greenspan’s case. Excluding 1987, the other four chairs’ three-month average return turns positive at +0.3%.

Second, the one-month success rate is actually close to 50/50. Volcker, Bernanke, and Yellen experienced small gains, while Greenspan and Powell saw small declines.

Third, the relationship between maximum drawdown and time lag. Powell’s first 12 months saw a nearly 20% decline at some point, but the point-to-point change by year-end was only a -0.9% drop. Overemphasizing max drawdown in analysis could lead to misjudging the overall direction.

Implications for Warsh’s succession in 2026

Returning to the present, Warsh will take over in an environment surprisingly similar to Bernanke’s in 2006: the S&P 500 at record highs, market concentration extremely high (top seven tech stocks near historical record weights), rising federal deficit pressures, and unprecedented politicization of Fed independence.

Several specific risks to consider in the analytical framework:

First, Warsh’s policy continuity with Powell is lower than in previous transitions. Yellen→Powell is within the same faction, and Bernanke→Yellen was seamless; but Warsh’s publicly stated positions on interest rate paths, balance sheet size, and relations with the administration differ from Powell’s, adding uncertainty.

Second, the possibility of a “shadow chair” arrangement is unprecedented in modern central banking history. Over the next few months, multiple Trump-appointed Fed governors will be in place, and this power transition uncertainty cannot be easily backtested.

Third, valuation starting points and market concentration create a “smaller tolerance for error” environment. Yellen’s smooth succession was based on policy continuity, reasonable valuations, and a dispersed market structure; none of these conditions are met in 2026.

For traders, the next steps to monitor are these three signals:

• The policy tone in his first FOMC meeting (June 16–17)
• His explicit statements on Fed independence
• Whether he will truly align with Trump’s pressure for rate cuts and turn dovish early

The strength of these signals will determine the short-term policy space for the market.