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Bombings

Investors View Terror Attacks as Buying Opportunities

Strategic Insights

— 2 min read

In the aftermath of the London terror strike, investors showed a calm and calculated response, viewing sharp declines in the market as buying opportunities. This shift in attitude highlights the growing desensitization to terrorism among investors, who can quickly separate the emotional toll of such events from their financial implications. The Dow Jones industrials closed 32 points higher on Thursday, and major European stock indexes rebounded from declines of 4% or more, ultimately closing less than 2% lower.

Key Takeaways:

  • Investors around the globe have become jaded or desensitized to the horrors of terrorism, separating fear from economic facts.
  • The market's reaction to the London terror strike was characterized by a sharp decline followed by a rebound, with the Dow Jones industrials closing 32 points higher.
  • Investors such as Charles Lieberman, chief investment officer at Advisors Capital Management, and Sam Stovall, chief investment strategist at Standard & Poor's, believe that the market's attention will quickly shift back to economic data, such as the jobs report.
  • Stocks have bounced back from previous terror attacks, including the Sept. 11, 2001, attacks, the Madrid train bombings last year, and the Bali hotel carnage in 2002, with investors showing faith in the resiliency of financial markets.
  • Theories on why U.S. stocks posted gains despite the attack include the lack of an economic knockout punch, the strike occurring abroad, and the scale of the attack being limited.

Statistics:

  • The Dow Jones industrials closed 32 points higher at 10,302.
  • Major European stock indexes rebounded from declines of 4% or more to close less than 2% lower.
  • The percentage change in the Dow Jones industrial average following previous incidents is as follows:

* World Trade Center bombing (Feb. 26, 1993): percentage change - 0.1% (1st day), 1.0% (1 week), 14.1% (1 year)

* Oklahoma City bombing (April 19, 1995): percentage change - 0.6% (1st day), 2.9% (1 week), 32.8% (1 year)

* Sept. 11 attacks (Sept. 11, 2001): percentage change - -7.1% (1st day), -14.3% (1 week), -10.4% (1 year)

* Tokyo sarin gas attack (March 20, 1995): percentage change - 0.2% (1st day), 1.6% (1 week), 39.2% (1 year)

* Bali bombing (Oct. 12, 2002): percentage change - 0.3% (1st day), 6.0% (1 week), 23.2% (1 year)

* Madrid train bombing (March 11, 2004): percentage change - -1.6% (1st day), unchanged (1 week), 5.4% (1 year)

Sources:

  • Smith Barney
  • USA TODAY research
  • Charles Lieberman, chief investment officer at Advisors Capital Management
  • Sam Stovall, chief investment strategist at Standard & Poor's
  • Scott Black, money manager at Delphi Management

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