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« Weighing the Week Ahead: More “Experts” Predicting a Market Top | Main | Weighing the Week Ahead: What is the Market Message? »

January 22, 2014



I have looked closely at the facts since 1950 - obviously there are different market situations, but the data is pretty compelling....

The bottom line is that there definitely is some truth to the view that the market always provides a test to the incoming Chair of the Fed. The question is when.... and it is later than the bearish pundits would like to think....

The data show two key points:

1) There is an initial rally when the Fed Chair takes over at the start of their term
2) There is then an initial correction. If the initial correction is less than 13%, then there will be a continued substantial rally and then an even BIGGER correction.

Looking at the initial rally.
• The median length is 56 days with a 6.9% price change
• The longest was 189 days under William Miller in 1978 as the market came out of its 27% 14 month correction that ended 5 days before he started.
• The shortest was 14 days and 2% as the market topped out on the Tuesday post opex in August 1987 just two weeks after Alan Greenspan started

With respect to the initial corrections, they were remarkably similar in length
• With the median being 56 days. The longest being 64 days and the shortest being the Bernanke 33 day correction.

• As the size of the initial corrections is so dramatically different, let me list them:
o William McChesney Martin
 -8.8% in 56 days
o Arthur Burns
 -21.9% in 62 days
o G. William Miller
 -15.0% in 64 days
o Paul Volcker
 -12.4% in 33 days
o Alan Greenspan
 -41.2% in 56 days
o Ben Bernanke
 -9.0% in 33 days

With respect to the even bigger eventual corrections, these were experienced under Martin, Volker and Bernanke, but before those corrections occurred, there were substantial rallies.
• Martin
o Rally: 19.4% over 644 days
o Correction: -13.9% in 253 days
• Volker
o Rally: 8.1% in 191 days
o Correction: -20.5% in 43 days
• Bernanke
o Rally: 30.4% in 617 days
o Correction: -54.7% in 512 days

Always enjoy your blog.



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