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:
- On an annualized basis, the Dow gained 12.9% under Yellen, which ranks as the 4th best performance.
- The best total return under a Fed chair is the 312% Dow gain under Alan Greenspan.
- Greenspan was also the longest tenured Fed chair at 18.5 years, so his annualized return is only 8.0%.
- Greenspan became the Fed chair about two months before the stock market crash of 1987.
- The shortest tenured Fed chair was William Miller at 1.4 years.
- Arthur Burns is the only Fed chair to take office on a weekend day (Sunday, February 2, 1970).
- Eugene Meyer oversaw the largest decline during his less than two-year term; which occurred during the Great Depression when the Dow lost 65%, marking the worst annualized return at -32.6%.
- There were two consecutive Fed chairs named Eugene (Meyer and Black) during the Great Depression. What are the odds of that?
“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.