---
title: "How Have US Stocks Performed During Past Federal Reserve Leadership Transitions?"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/286541048.md"
description: "Huafu Securities stated that the impact of Federal Reserve leadership transitions on US stocks is characterized by \"short-term stability and mid-term amplification\": markets often rise steadily in the first month, but volatility risks intensify significantly after 3-6 months (with a Maximum Drawdown of -13.14% at 6 months). What truly determines market direction is not the change in personnel itself, but the inflation level, valuation position, and policy continuity at the time of the transition"
datetime: "2026-05-15T09:44:34.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/286541048.md)
  - [en](https://longbridge.com/en/news/286541048.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/286541048.md)
---

# How Have US Stocks Performed During Past Federal Reserve Leadership Transitions?

On May 15, Jerome Powell will officially step down as Chair of the Federal Reserve, and Kevin Warsh will succeed him, taking the oath of office. For the market, the core concern is: With the change in Fed leadership, how will US stocks perform?

In its latest report, Huafu Securities pointed out that investors need to be wary of the calm facade during the "first month of the transition." Historical experience shows that in the first month after a new Federal Reserve Chair takes office, US stock performance is usually relatively stable, even slightly better than the historical average.

However, **the true market variables often emerge 3 to 6 months after the transition.** As the new policy framework is gradually priced in by the market, the average Maximum Drawdown for US stocks over 3-month and 6-month horizons reaches -10.13% and -13.14%, respectively, indicating a significant rise in mid-term volatility risk.

At the same time, a shift in policy style is reshaping asset pricing logic. Warsh explicitly stated during his hearings that he would abandon the "over-communication" forward guidance framework of the Bernanke, Yellen, and Powell eras. **This means the Federal Reserve will no longer act as the market's "guardian," and asset prices will become sharply more sensitive to economic data and meeting resolutions.**

In terms of specific operations, Warsh plans to introduce the Trimmed Mean PCE as a new inflation measure. Constrained by the current system size with approximately $3 trillion in reserves, he may actively slow down the pace of balance sheet reduction (QT). For investors, the next six months require preparation for higher expected volatility and more drastic asset repricing.

## The "Honeymoon Period" in the Early Transition and the "Risk Amplifier" in the Mid-Term

Historical data indicates that the impact of Federal Reserve Chair transitions on US stocks exhibits a clear characteristic of "limited short-term impact, amplified mid-term impact." Markets often over-worry about unknown policy shifts, but experience since 1970 reveals a counter-intuitive phenomenon: **In the first month after the transition, US stocks do not fall into turmoil but rather enter a relatively safe "observation period."**

Specifically, one month after the transition, the average gain of the S&P 500 is 1.81%, significantly higher than the overall historical average of 0.80%; during the same period, the average Maximum Drawdown is only -2.91%, outperforming the overall historical average of -3.95%. This is mainly because **new Chairs tend to maintain the policy framework or communication tone of their predecessors in the initial stage, providing short-term certainty to the market.**

However, the real risks gradually emerge in mid-term pricing. As the new policy path of the FOMC, changes in economic data, and the substantive impact of the new Chair's communication style take effect, US stocks will face a significant window of amplified risk:

-   **3-Month Horizon**: The average change in the S&P 500 drops from the historical norm of +2.28% to -1.74%; the average Maximum Drawdown expands to -10.13%, deepening by 2.92 percentage points compared to the historical norm.
    
-   **6-Month Horizon**: The average gain further narrows to 1.17%, far below the historical norm of +4.63%; the average Maximum Drawdown plunges to -13.14%.
    

In summary, the impact of Federal Reserve leadership transitions on US stocks is not an immediate explosion but a gradual deepening process. Beneath the calm surface of the early transition, investors must remain highly alert to volatility risks over the 3-to-6-month horizon.

## Historical Review: Macro Cycles and Policy Continuity Dictate Market Fate

Reviewing Federal Reserve leadership transitions since 1970, the ultimate market direction was not determined by the "change in personnel" itself, but depended on the inflation level, valuation position, and whether the new Chair continued the existing policy framework at that time. **The macro backdrop of each transition is the key variable determining the intensity of US stock volatility.**

-   **Political Compromise and Stagflation Risks (Burns in 1970, Miller in 1978)**

When Burns took office, US inflation was high (CPI around 6.2%) and the unemployment rate was 4%. Under political pressure from Nixon, he pushed the effective federal funds rate down from 5.75% to 3.25%, briefly sparking a "Nifty Fifty" rally but completely destroying inflation expectations, paving the way for subsequent stagflation.

After Miller took over, US stocks rose 18.68% over 6 months, but this gain was built on the false prosperity of negative real interest rates, with inflation never curbed. Inflation was already at a higher level and continuing to climb when Miller took office, yet he still did not pivot to tightening, leading to further loss of control over inflation expectations.

-   **Aggressive Tightening and Valuation Killers (Volcker in 1979, Greenspan in 1987)**

Facing runaway inflation, Volcker pushed interest rates to extreme levels close to 20%, causing a 6-month Maximum Drawdown in US stocks of -10.25%. However, he exchanged short-term pain for fundamental governance of inflation, eventually suppressing CPI to the 3%-4% range.

In the early stage of Greenspan's tenure, he continued a tightening stance. Coupled with high US stock valuations and the prevalence of program trading at the time, this directly triggered "Black Monday"—the market's Maximum Drawdown reached -5.16% within 60 days of his taking office. This shock forced a rapid pivot, lowering interest rates from 7% to 5.5% in the short term to stabilize the market.

-   **Smooth Transition and Cycle Continuation (Bernanke in 2006, Yellen in 2014, Powell in 2018)**

When Bernanke took over, economic fundamentals were relatively stable, and he continued the rate hike path, with a 3-month Maximum Drawdown of only -2.16%. When Yellen took over, CPI was only 1.1%, and the Federal Reserve maintained a zero-interest-rate policy; the market rose steadily amid a mild recovery, accumulating an 8% gain over 180 days. Powell took over in the later stage of the rate hike cycle. In 2018, amidst trade friction, he continued to raise rates four times to 2.25%-2.5%, causing US stocks to face significant pressure in the early stage of his tenure.

**Historical experience shows that what truly determines market direction is the cyclical position and policy choices behind the transition, not the transition itself.**

## Warsh's Governance Blueprint: Reshaping the Inflation Narrative and Ending "Over-Communication"

**If Warsh leads the Federal Reserve, he may reshape the central bank's communication mechanism, reduce forward guidance, and create policy space for rate cuts by leveraging the "Trimmed Mean PCE" and the AI productivity narrative.**

During Senate hearings, Warsh displayed a distinct posture of reflection and reform, pointing directly to the loss of control over inflation in 2021-2022 as a major policy error. At the operational level, the market needs to pay close attention to adjustments in his communication mechanism. **Warsh explicitly opposes disclosing interest rate paths in advance, believing that "over-communication" restricts policy flexibility.** This means the expectation management model, which has continued for nearly fifteen years from the Bernanke and Yellen eras to the Powell era, may come to an end. Without the protection of forward guidance, the volatile response of risk assets to economic data and FOMC meeting results will be amplified.

Regarding the logic for rate cuts, Warsh did not promise rapid cuts but proposed two potential easing pivots:

-   **AI Productivity Narrative**: Believing that efficiency improvements brought by artificial intelligence can provide a basis for rate cuts in the long term.
    
-   **New Inflation Measurement Framework**: Specifically mentioning the "Trimmed Mean PCE" compiled by the Dallas Fed—which excludes the weights of the bottom 24% and top 31%. Under current tariffs and localized commodity shocks, this indicator is significantly lower than core PCE. **If its weight in decision-making increases, the Federal Reserve can construct a narrative that "underlying inflation has fallen," thereby creating room for rate cuts.**
    

Regarding balance sheet reduction, Warsh advocates for slow and prudent progress in coordination with the Treasury Department. However, current liquidity conditions do not support aggressive operations. Currently, bank reserve levels are approximately $3 trillion, while the ON RRP buffer is narrowing. Referring to the 2017-2019 balance sheet reduction cycle, a crisis in the repo market was triggered when reserves fell to approximately $1.4 trillion. Considering stricter current regulations and higher endogenous demand for reserves by banks, the actual compressible liquidity space is limited. **Therefore, balance sheet reduction under Warsh is more likely to follow a compromised path of "slower, shallower, and more back-loaded."**

### Related Stocks

- [.SPX.US](https://longbridge.com/en/quote/.SPX.US.md)
- [.IXIC.US](https://longbridge.com/en/quote/.IXIC.US.md)
- [.NDX.US](https://longbridge.com/en/quote/.NDX.US.md)
- [.DJI.US](https://longbridge.com/en/quote/.DJI.US.md)
- [.VIX.US](https://longbridge.com/en/quote/.VIX.US.md)

## Related News & Research

- [Big changes are coming to the Federal Reserve tomorrow, and it could spell trouble for Wall Street](https://longbridge.com/en/news/286414207.md)
- [A new day at the Fed, but policy forecast cloudy for Warsh, Trump, US](https://longbridge.com/en/news/286750351.md)
- [More from Fed's Barr - hasn't decided on what to do at June FOMC meeting](https://longbridge.com/en/news/286484533.md)
- [The bond market is already hiking rates as Kevin Warsh takes over as Fed’s new chair](https://longbridge.com/en/news/286476010.md)
- [From bad to worse: The Federal Reserve's May inflation forecast is terrible news for stock investors](https://longbridge.com/en/news/286510546.md)