Musical Chairs at the Federal Reserve Historically Sings Well for the Market

While leadership changes at the Fed can spark uncertainty, the S&P 500 historically rallies whenever a new U.S. Federal Reserve Chair is appointed. In fact, going back to 1970, the S&P 500 has gained 12.7% in the twelve months that follow.

This data is particularly timely, as Jerome Powell’s term ends on May 15, 2026.

The chart adjacent shows that the market not only posts strong 12-month returns, but also solid gains 1-month, 3-months, and 6-months afterward.

We should note that 1987 is a clear outlier, due to “Black Monday,” when the Dow Jones fell 23% for reasons unrelated to the Federal Reserve.

We expect this historical pattern of market gains to recur in 2026 for two reasons.

The Market Would Cheer a Rick Rieder Chairmanship

Today, the predictions market assigns a 47% probability that Trump will nominate Rick Rieder as the next Fed Chair.

Such an appointment would likely be welcomed by investors. As a Senior Managing Director at BlackRock, Rieder manages approximately $2.4 trillion in assets. His extensive bond market expertise positions him as a market-friendly candidate.

Rate Cuts to Continue in 2026

Bull markets don’t die of old age. Central banks often kill them off with higher rates. 

In 1996, Alan Greenspan famously warned of “irrational exuberance”, particularly in the technology sector. However, that didn’t mark the peak of the tech bubble as many people presume. Instead, Greenspan’s comment was minted on December 5, 1996. The Nasdaq closed around 1,296 later that day and would climb another 289% over the next 3 years before the “dot com” bubble eventually burst.

Leading up to the Nasdaq’s peak on March 10, 2000, the Fed hiked rates five times in 1999 and early 2000 (+0.25% on June 30, 1999; +0.25% on August 24, 1999; +0.25% on November 16, 1999; +0.25% on February 2, 2000; and +0.25% on March 21, 2000). Following these rate hikes, the market plunged considerably.

For the balance of 2026, we expect two more rate cuts in the U.S. If higher rates are proposed, we will adjust our stance. As long as no hikes are anticipated, we remain bullish and fully invested for our clients.

-written by Jeff Pollock