Historical curse warning! Barclays: Within six months of the new chairman of the Federal Reserve taking office, the average drop of the S&P 500 will be 16%

Barclays analysis shows that the upcoming leadership change at the Federal Reserve, with Kevin Warsh set to take over as chairman in May, is likely to inject new volatility into the US stock market, with historical experience predicting this risk of fluctuation. Data compiled by Barclays' global stock tactical strategy chief Alexander Altman shows that since 1930, in the one, three, and six months following the appointment of a new Federal Reserve chairman, the S&P 500 index has on average experienced drawdowns of 5%, 12%, and 16% respectively. Such sharp declines are greater than the typical peak-to-trough drops in the S&P 500 index in any random year. Altman wrote in a report to clients: "The market may be anxious about whether Mr. Warsh is viewed as a 'hawk,' but the real test is more likely to come after May. New Federal Reserve chairs typically face some sort of market 'test' in the six months following their inauguration." Following President Trump's nomination of Warsh to replace Jerome Powell, the US stock market dropped last Friday as traders saw him as the most hawkish candidate on the shortlist. Warsh served as a Federal Reserve governor from 2006 to 2011. If confirmed by the Senate, Warsh will face a market that is already uneasy about the independence of the Federal Reserve. Trump has previously criticized Powell, claiming that he has not loosened monetary policy quickly enough. Although Warsh was known for his hawkish reputation during his tenure at the central bank, he later aligned himself with the President's position by advocating for lower interest rates publicly. He also stated that the Federal Reserve should reduce its bond portfolio and rethink its economic models. The leadership change will exacerbate the already substantial uncertainty surrounding the monetary policy trajectory. Current policies have been pulled between signs of high inflation and a cyclical cooling of the labor market. Christopher Harvey, head of stock and portfolio strategy at the Canadian Imperial Bank of Commerce, suggested that reducing certain assets on the Fed's balance sheet (which would withdraw liquidity from the financial system) could have negative impacts on risky assets. On the other hand, Morgan Stanley's Michael Wilson wrote in a report to clients on Monday that Warsh's reputation as a "balance sheet hawk" could help cool gold prices and provide moderate support for the US dollar, "buying time for a more comprehensive policy agenda."