Big Ben's Nomination Analog
So you're saying I have a chance...
Several of the Professors here talk often of analogs. The term is typically meant as shorthand when we compare one thing to another that is different but substantially similar. Most are probably familiar with the comparison of the Nasdaq versus Nikkei pot-bubble environments. Obviously, history doesn't repeat exactly, but watching these sorts of historical comparisons can sometimes yield valuable clues.
With the imminent departure of Dr. Greenspan from the Fed, I thought it would be interesting to show how the stock market has reacted after prior Fed nominations. I buzzed about immediate reactions in October, and so far the S&P's performance has exhibited an eerily similar pattern to the Greenspan and Volker nominations.
After the prior nominations, the S&P enjoyed a rally of between 8% - 15% over the following couple of months. It then topped out at around day 50 of the rally, and corrected about 10% over the next two months before bottoming around day 75.
So far after the Bernanke nomination, the S&P rallied nearly 10%, and topped out at day 55. It's following this analog pretty closely, and should it continue, we would expect a further decline before a low in about a month.
Honestly, I'm not sure why the market reactions would follow each other so closely, which is a problem. Usually there is some type of economic or behavioral explanation for why analogs make sense, but I can't find a good reason why this one exists. It most certainly could just be a random occurrence, I will be the first in line to admit that, but I think the consistency so far is intriguing and will continue to see if this one follows the course.
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