Will a Change in the Fed Chair Lead to a Sharp Decline in U.S. Stocks?

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坦途宏观2026/07/09 09:31

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By:坦途宏观

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Several clients have asked how to view the widely circulated chart of “U.S. stocks dropping after a new Fed Chair takes office.” Here, we’ll briefly discuss this topic.

Chart 1: Change of Fed Chair = Major Drop in U.S. Stocks

Will a Change in the Fed Chair Lead to a Sharp Decline in U.S. Stocks? image 0

1. I’m not sure which “maximum 6-month drawdown” is used here:

A) The lowest point within 6 months minus SP500 at the time the new chair took office, or

B) The lowest point within 6 months minus the highest point within 6 months.

But whichever method, the data in this chart is incorrect.

2. Taking Powell as an example: he was sworn in on February 5, 2018, but the early-2018 flash crash actually happened on January 26. If we use Method A, Powell's max drawdown in the 6 months after taking office was 2.56%. For Method B, the max drawdown was 9.45%. Both are far below what's shown in the chart.

3. Furthermore, no matter which drawdown calculation you use, the maximum drawdown in the 6 months after a new Fed Chair takes office is not significantly different from the maximum drawdown in any random 6 months in SP500 history.

4. If we use drawdown definition A:

1) The maximum drawdowns within 6 months after the last 7 chairmen took office are as follows:

Burns (1970-02-01): 19.20%
Miller (1978-03-08): 0.00%
Volcker (1979-08-06): 4.25%
Greenspan (1987-08-11): 32.82%
Bernanke (2006-02-01): 4.58%
Yellen (2014-02-03): 0.00%
Powell (2018-02-05): 2.56%

Median is 4.25%

2) The distribution of the maximum drawdown in any 6-month period for the SP500:
10th percentile: 0.09%
25th percentile: 1.44%
75th percentile: 8.98%
90th percentile: 16.24%

Median: 4.12%

The two medians are almost identical. In the test for equal means, t-test: p=0.2870, Wilcoxon test: p=0.3438. There is no significant difference.

5. If we use drawdown definition B

1) The maximum drawdowns over 6 months after the last 7 chairmen took office are as follows:
Burns (1970-02-01): 23.21%
Miller (1978-03-08): 17.12%
Volcker (1979-08-06): 13.31%
Greenspan (1987-08-11): 33.51%
Bernanke (2006-02-01): 7.70%
Yellen (2014-02-03): 12.38%
Powell (2018-02-05): 9.45%

Median: 13.31%

2) The distribution of maximum drawdowns in any historical 6-month period for the SP500:
10th percentile: 7.80%
25th percentile: 9.97%
75th percentile: 17.74%
90th percentile: 22.12%

Median: 12.99%

Again, the two medians are nearly identical. In the test for equal means, p=0.5516, p=0.8854, again with no significant difference.

6. In summary, according to historical patterns, there is almost always a significant drawdown in the U.S. stock market within any given six months—this is historical normality, and the same can be expected for the next six months. It can even be inferred that, since U.S. stock valuations are at historical extremes, future drawdowns could be even greater than the historical median.

7. For example, the current SP500 CAPE (cyclically adjusted price/earnings ratio) is as high as 39.58x, at the 95th percentile in history. According to backtests over the past 100 years, when the CAPE is at a high level (80–100th percentile), the median return for the SP500 over the next 60 months ( annualized +4.32%) is significantly lower, and the maximum drawdown (-19.40%) is significantly higher. But in the short- to mid-term (3–24 months), the difference isn’t obvious.

Chart 2: CAPE

Will a Change in the Fed Chair Lead to a Sharp Decline in U.S. Stocks? image 1

Table 1: CAPE Datasets and Forward Returns/Maximum Drawdowns

Will a Change in the Fed Chair Lead to a Sharp Decline in U.S. Stocks? image 2

8. In other words, Kevin Warsh’s appointment—if it turns out to be much more hawkish than expected—could become the trigger for a (significant) correction in U.S. stocks, but this does not mean the event of a new Fed Chair itself naturally has any asset implication. This chart—whether in terms of data or logic—is pure AI-generated junk (PS: Oops, even this sentence may impact AI valuations).

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Will a Change in the Fed Chair Lead to a Sharp Decline in U.S. Stocks? image 3

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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