Will a Fed reshuffle inevitably lead to a market crash? Warsh's appointment could trigger the 1996 "curse," putting the stock market to the test.

According to Mars Finance, on May 19th, Federal Reserve Chairman Kevin Warsh will succeed Jerome Powell this Friday, potentially sending shivers down Wall Street's spine. Behind this lies a 96-year-old "Federal Reserve curse": on average, the stock market retraces 12% within three months of a new chairman taking office and 16% within six months. Warsh's appointment as a staunch inflation hawk signifies a significant shift in policy towards tightening, and investors are repricing systemic risk in the market. According to Barclays data, this pattern has held true since 1930: within one month of a new Fed chairman taking office, the S&P 500 index falls by an average of 5%; within three months, it retraces 12%; and within six months, it retraces 16%. When a new chairman takes office, interest rate policy, inflation tolerance, and the pace of monetary easing will all be rewritten. The market must factor in a risk premium for this uncertainty. Warsh's hawkish stance is unequivocal—he plans to shake up the Fed's 15-year-old dot plot and forward guidance framework, fundamentally rewriting the pricing logic of global assets. Powell's previous eight-year term was also a tumultuous one. In his first week in office in 2018, the Dow Jones Industrial Average plummeted 1175 points, and the US stock market lost $1 trillion in market capitalization in three days. In 2022, facing soaring inflation, he launched the most aggressive interest rate hike cycle in 10 years—four consecutive rate hikes of 75 basis points each, raising interest rates from zero to a 20-year high of 5.25%-5.5%. On the performance front, Powell produced relatively good employment data, with an average monthly unemployment rate of 4.6%, better than Greenspan (5.5%), Bernanke (7.3%), and Yellen (5.1%). However, inflation became a major weakness, with an average inflation rate of 3.09%, far exceeding the Fed's 2% target. More noteworthy is his unwavering commitment to maintaining the Federal Reserve's independence under political pressure—considered his most important legacy. However, history has its turning points. When Paul Volcker took office in 1979, the US inflation rate was 13.5%. He successfully beat inflation with aggressive interest rate hikes (pushing rates to 20%), at the cost of an economic recession. Yet, during his eight-year term, the S&P 500 surged from 104 points to 333 points, a cumulative increase of 220%. A similar pattern was repeated during the terms of Volcker, Greenspan, and Bernanke: short-term volatility was the norm, and long-term growth was the rule. During the terms of these three chairmen, the US stock market rose a total of 16 times. Each time, the market panicked at the beginning of a new chairman's term, and each time, it gradually accepted the new policy framework after six months.