What happens to stocks when a Fed chief exits?

Federal Chairman Ben Bernanke is expected to leave his post in January after eight years of service. Stocks are already beginning to slump as investors anticipate a change in Fed leadership and the start of the central bank's tapering of its bond-buying program.

Hadley Malcolm
10:05 a.m. EDT August 21, 2013
USA Today

Federal Reserve Chairman Ben Bernanke is widely expected to leave his post in January after eight years heading the central bank. But stocks are already beginning to slump as investors anticipate a change in Fed leadership and the start of the central bank's tapering of its bond-buying program, which is credited with rallying the market in recent years.

How will stocks fare once a new leader takes the helm of the Fed? A look at S&P 500 performance during the first year of the last three Federal Reserve chiefs:

• Paul Volcker, Aug. 6, 1979 - Aug. 11, 1987: Volcker inherited an inflation problem when he took over in August 1979. Inflation was more than 13%. He doubled short-term interest rates and brought inflation under control. A year into his tenure, the S&P was up 16.5%.

• Alan Greenspan, Aug. 11, 1987- Jan. 31, 2006: Two months after Greenspan took over from Volcker, the stock market crashed and the S&P dropped more than 20%. The crash forced him to lower interest rates and ensure the Fed would be ready to provide liquidity to support the economic and financial system. Greenspan ended his first year with the S&P still down 21.2%.

• Ben Bernanke, Feb 1, 2006 - present: When Bernanke took over, the credit crisis was brewing and the real estate bubble near ready to pop. A year in, the S&P was up 12.8%. The Great Recession meant he had to deal with the worst financial crisis since the Great Depression. Now his bold and unprecedented fiscal policies are on their way out, and Wall Street is getting spooked.

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