The stock market has a ‘funny way of testing new Fed chairs’

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Markets tend to test new Federal Reserve chairs not long after they take over; Jerome Powell’s first drubbing came especially quickly with last week’s sharp reversal.
The Dow Jones industrial average gained 63% under Janet Yellen’s four-year tenure, the sixth best run of 15 Fed chairs, according to LPL Research.
The best total return under a Fed chair is the 312% Dow gain under Alan Greenspan; but he was also the longest tenured Fed chair at 18.5 years, so his annualized return is only 8.0%.

History suggests it’s hardly a coincidence to have stocks take a spill not long after a new Federal Reserve chair is installed — Jerome Powell just received the drubbing a little sooner than most, on his very first day on the job.

“As Janet Yellen hands over the reins to Jerome Powell at the Federal Reserve (Fed), a look back at history shows that markets have a funny way of testing new Fed chairs,” LPL analysts wrote in a blogpost.

Alan Greenspan is the perfect example of a Fed chair who faced a market crash shortly after he took over, the famous Black Monday of 1987 which saw the stock market plunge 22.6% in a single day. His successor, Ben Bernanke, had to wait a little longer — but the two-year calm gave way to the deepest recession and worst financial crisis in modern history.

But what does the record say about how equities have performed under individual Fed chairs? Thankfully, the folks at LPL Research have done the math, and found, among other things, that Janet Yellen’s tenure coincided with impressive gains.

Over her four-year tenure as Fed chair, the Dow gained a solid 63%. As the chart below shows, this ranks sixth out of the previous 15 Fed chairs:

The biggest stock price gains happened under Alan …read more

Source:: Business Insider


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