August 1, 2021

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Taper tantrum after the Federal Reserve update? Chairman Jerome Powell’s stock-market record is poor – MarketWatch

3 min read

After a big update from the Federal Open Market Committee Wednesday afternoon, markets were sliding and investors shouldn’t be faulted for expecting a bearish reaction.

Federal Reserve Chairman Jerome Powell’s record with the stock market isn’t a stellar one. To be sure, that is probably not high on the central banker’s priority list today — maximum employment and price stability are the Fed’s dual mandates —but investors may be preparing for a bit of choppiness in stocks nonetheless.

The Dow Jones Industrial Average DJIA, -0.56%, the S&P 500 index SPX, -0.30% and the Nasdaq Composite Index COMP, -0.04% were down solidly after the Fed’s June policy update at 2 p. m. Eastern Time, followed by Powell’s news conference at 2:30 p.m.

However, the S&P 500 has declined on average more times than not during Powell’s chairmanship of the Fed, compared with those led by Janet Yellen, now U.S. Treasury Secretary, and former chairman Ben Bernanke.

The average decline of the S&P 500 index for Powell on Fed decision or update days is a loss of 0.13%, and the median is 0.18%. By comparison, Yellen presided over an average gain of 0.16% and Bernanke oversaw average rise of 0.40% on Fed days, according to Dow Jones Market Data.

Dow Jones Market Data

Data from Bespoke Investment Group offers a slightly broader look at Powell’s comparative stock-market performance, including a comparison with Alan Greenspan, who led the Fed from 1987 to 2006.

Bespoke Investment Group

As previously mentioned, Powell isn’t likely to be focused on his stock-market performance as much as the investors are in the short term.

Th Fed held federal funds rates between 0% to 0.25%, but Fed stuck to its guns, characterizing inflation as transitory. At the same time, it acknowledged that inflation would might run higher this year, raising its forecast for headline personal consumption expenditure, its preferred measure, inflation to 3%.

In 2013, Bernanke told lawmakers that the central bank could begin to pare back the bond purchases implemented in the 2007-09 recession if the economy continued to improve and the market’s didn’t react well.

Read: Taper tantrum? Only if somebody wakes the U.S. bond market

Analysts say that this time the Fed is likely to give ample lead time in making such declarations to avoid a so-called taper tantrum.

Treasury traders hate inflation because it means that coupon payments and principal in the future aren’t worth as much in a rising price environment. Evidence of pricing pressures tends to drive selling in bonds, as a result.

However, bonds have been fairly sanguine about evidence of hotter inflation, so far.

Yields for the 10-year Treasury TMUBMUSD10Y, 1.550% and the 30-year TMUBMUSD30Y, 2.208% are lower than they were at the Fed’s April 28 policy update. Rates were picking up, however, with the 10-year at 1.55% and 2.214% after the Fed decision.

Bulls can perhaps at least take solace in the fact that equity indexes have been trading near record highs, even as Powell’s statement delivers a characteristic stumble lower.

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