Kevin Warsh, Alan Greenspan, and How to Invest Safely Under a New Fed Chair
On Friday, May 22, Kevin Warsh was officially sworn in as the 17th chair of the Federal Reserve. To the casual observer, it was just another transition of power in Washington. But for students of market history, the ceremony featured a set of eerie, structural coincidences that instantly brought to mind the euphoric, dangerous summer…
On Friday, May 22, Kevin Warsh was officially sworn in as the 17th chair of the Federal Reserve.
To the casual observer, it was just another transition of power in Washington. But for students of market history, the ceremony featured a set of eerie, structural coincidences that instantly brought to mind the euphoric, dangerous summer of 1987. I was there, so to speak. It was toward the end of my rookie year as a Wall Streeter. Some guy named Alan Greenspan was replacing the only Fed chair I’d known by name, Paul Volcker.
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Volcker was ending his term after taming the inflation of the 1980s. He was famous as a fierce proponent of Fed independence, often clashing with President Ronald Reagan over that issue. Sounding familiar yet?
What Happened to the S&P 500 in 1987?
1987 was as bad as a single-day, 22% decline in the stock market sounds. However, when we look at the period that preceded and followed it, there’s some good perspective to be gained.
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You can see the lead up to the 1987 stock market crash. I’m showing the S&P 500 Index ($SPX), although at the time, the Dow Jones ($DOWI) was still more popular. The market did fall more than 20% on Black Monday, Oct. 19 of that year. And there were some warning shots, as well as a surge in the market leading up to it.
After the crash, ironically, was one of the steadiest up markets I can recall. But at the time, no one wanted to invest. They were in shock. Greenspan oversaw a very gradual restoration of confidence.
And that brings us to Friday, and the induction of Mr. Warsh. A red flag appeared in the venue itself. Kevin Warsh took his oath of office right inside the East Room of the White House, standing alongside President Donald Trump. This marks the first time a Federal Reserve chair has been sworn in at the White House since Alan Greenspan did so in August 1987.
So what, you say?
For decades, the central bank has gone to great lengths to preserve the vision of complete independence, the way it was drawn up over 90 years ago. The oath is usually administered at the Fed’s own headquarters on C Street in Washington, DC. Bypassing that tradition to hold a high-profile, televised White House ceremony under golden curtains sends a clear, powerful message to the markets about just how close the executive branch wants the new central bank leadership to be.
The historical parallels between Warsh’s entrance and Greenspan’s 1987 debut go much deeper than the location of their swearing-in ceremonies. During the event, Trump went out of his way to loudly proclaim that he wants Warsh to be “totally independent” and to ignore the administration entirely.
If that script sounds familiar, it’s because it is a mirror image of how this same ceremony went down back in 1987. Back then, the Reagan administration publicly praised Greenspan’s independent status, while privately expecting the newly minted Fed chair to keep liquidity flowing freely to sustain an aging bull market. Coincidence? Maybe. We won’t know for another 6-12 months.
After all, Trump has spent his second term publicly hounding the central bank to slash interest rates.That was directed at Jerome Powell. But for Warsh, the message was “do your own thing.”
A stock market currently sitting at record highs on the back of an unhedged, speculative AI mania is betting on a frictionless, cozy relationship between the Fed and the White House. History suggests that when political theater and central banking mix this overtly, a structural reckoning is on the table. And the markets, particularly the bond market, have a history of testing new Fed chairs.
When Alan Greenspan took the reins in August 1987, he inherited an economy marked by a top-heavy stock market, expanding credit debt, and emerging inflation pressures. So, nothing like today (pause for effect)… just kidding! Exactly like today.
Back then, exactly two months later, the market experienced Black Monday, forcing the new chair to immediately flood the financial system with liquidity to prevent a systemic collapse.
Kevin Warsh steps into the hot seat facing an arguably more precarious setup. He is now responsible for a bloated, $6.5 trillion Federal Reserve balance sheet. Inflation is proving to be super sticky, driven by an escalating energy price surge and geopolitical conflict. Long-term Treasury yields are breaking out of their ranges, with the 30-year rate pushing into territory not seen since the dot-com bubble era.
What’s Key for Investors with 1987-Style Risks Front of Mind?
In light of these risky parallels, I’ll re-emphasize a few of my go-to keys for 2026 investing:
Keep position sizes modest.
Don’t think of cash as a “chicken” move.
Learn to hedge, using inverse ETFs, put options, option collars, or volatility ETFs.
Understand that the bond market is “in a mood” right now, which means rates are moving up and could fail to offset stock market risk.
Kevin Warsh openly noted during his speech that he intends to lead the Fed with the same “energy and purpose” that Greenspan did. Investors should remember how Greenspan’s early months were graded by the markets. When a new Fed chair takes office at the White House amidst rising inflation, a bleeding bond market, and a speculative stock mania, the ghosts of 1987 aren’t just a curiosity. They are spirits to fear.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob’s written research, check out ETFYourself.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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