Terrorism’s reign of fear over markets fades
Terrorism is losing its shock value, at least when it comes to the reaction of financial markets around the globe.
As terror attacks become more common, the reaction of investors is less panicky, less emotional and less bearish. Despite the human tragedy of the Paris attacks, financial markets around the globe, including France, shrugged off Friday’s attack.
In a twist, shares rallied in the U.S. Monday, the first time that has happened on the first day of trading after an attack of this magnitude — a sign terrorism is having less of an impact on the global economy and markets as attacks become more common.
The Dow Jones industrial average rallied more than 237 points Monday, and the Standard & Poor’s 500 rallied 1.4% Monday. Shares were mostly higher in Europe, with the broad Stoxx Europe 600 closing up 0.3%. In France, the CAC 40 declined just 0.1%, after being down 1.2% in early trading.
The rebound rally in Europe picked up steam Tuesday, with the broad Stoxx Europe 600 up 2% and shares in Paris up 2.1%.
Historical statistics bear out the thesis that terror is having a smaller impact on stocks. The S&P 500 fell 4.9% on the first day of trading after the Sept. 11, 2001, attacks and fell 11.6% in total.
But the losses are shrinking with each successive attack. In March 2004, the S&P 500 fell 1.5% on the first day of trading after the Madrid train bombing. It fell just 0.8% in July 2005 after the London subway bombing.
Increasingly, investors are looking at history, and what they see is a market that dips after the initial attack but recovers swiftly.
The hope, of course, is no attack will be so catastrophic to end the new trend of markets shrugging off the financial impact of terror attacks.