LPL Financial Research

What Could a New Fed Chair Mean for Markets?

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. We’ll get into all of that in a second, but first things first—how did Yellen do?

Over her four year tenure as Fed chair, the Dow gained a solid 63%. As the chart below shows, this ranks 6th out of the previous 15 Fed chairs:

Here are several other interesting stats on Fed chairs and markets:

“I didn’t have a computer on my first day at LPL, and I thought that was bad,” remarked Ryan Detrick, Senior Market Strategist. “Well, Jerome Powell saw the single worst first day ever for a Fed chair when the Dow dropped 4.6% on Monday—I’d say that’s a bad first day on the job!”

“Weakness after a new Fed chair is quite normal. In fact, the Dow tends to slide more than 15% on average within the first six months of new Fed leadership,” said Detrick. But the good news is that the Dow has rebounded more than 20% on average a year after those six-month lows are made.

There are many reasons why global markets tumbled over the past week; but it’s important to be aware that a new Fed chair (and the uncertainty he or she might bring) adds yet another worry for markets as Powell becomes acquainted with his new job, and markets become acquainted with him.

IMPORTANT DISCLOSURES

The economic forecasts set forth in the presentation may not develop as predicted.

All performance referenced is historical and is no guarantee of future results.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Dow Jones Industrial Average (DIJA) is the most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue-chip stocks, primarily industrials. The 30 stocks are chosen by the editors of the Wall Street Journal. The Dow is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses or sales charges. Index performance is not indicative of the performance of any investment.

This research material has been prepared by LPL Financial LLC.

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