Will a Change in the Fed Chair Lead to a Sharp Decline in U.S. Stocks?
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:
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%
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%
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%
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%
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.
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.
You may also like
Paramount SkyDance (PSKY.US) Nears Settlement Agreement to Advance $110 Billion Warner Acquisition, But Some State Attorneys General Still Withhold Support
According to reports, Paramount is engaged in in-depth negotiations with state attorneys general to facilitate the completion of its $110 billion acquisition of Warner Bros. Discovery; however, not all state attorneys general support this plan.
More Hawkish Than Market Consensus! JPMorgan: South Korea Interest Rates Targeted at 3.75%, Terminal Rate ‘Ceiling’ Undetermined
JPMorgan believes that if semiconductor-driven growth triggers stronger inflation and credit and financial markets remain stable, its already above-market-consensus forecast for South Korea's interest rates will face upside risks.
Ackman "Switches Holdings" to AI Giants: Sells All Alphabet (GOOGL.US) Shares, Increases Meta (META.US) Holdings—Should Investors Follow?
Ackman made it clear that this is not a bearish outlook on Alphabet, but rather a decision to shift funds to other, more attractive opportunities given the current valuation.
Crypto prices
More
