September 11
12th September 17
The terrorist attacks on Tuesday morning, September 11, 2001 were undoubtedly the most dramatic event of the last 20 years. It was viewed as an attack on America and has defined US foreign policy since. Today, on the 16th Anniversary of the attack we will briefly profile its impact on the stock markets.
In times of relentless bull markets and historically low volatility we believe that it is
important to look back on historic stock market events to remind ourselves of what can happen
in the stock markets.
What 9/11 should show investors is what can happen in the market will happen. There is no
point rehashing the actual events themselves, Wikipedia will do a better job of that than what we will. But let’s have a look at the impact on the stock market.
Context:
• It was already a bear market.
• The internet bubble had peaked early the previous year and most investors
holding through 2000 to 2001 experienced significant losses.
• The market would eventually bottom out in late 2002
September 11:
• It quickly became clear that the United States was under attack.
• The stock market did not open on Tuesday the 11th of September 2001 and it remained closed for the rest of the week.
• The market reopened for trading on Monday the 17th of September.
• The market has closed for random events before such as the Moon Landing, snow storms and when troops returned from World War 2. But this was the longest unplanned closure since the Great Depression. We believe this portrays the significance of the event.
Market Reaction:
• Not surprisingly when stocks began trading again the selling was brutal
• The S&P 500 dropped 684 points for a 7.1% decline
• By the end of the week the market had closed 11.4% down
• The Dow Jones was down 14%.
• Estimated $1.4 trillion in value was lost in five days of trading
Specific Stocks:
• Not surprisingly, the future of Air Travel suddenly became uncertain. Airline stocks such as United Airlines dropped 42% on September 17 while American Airlines closed 39% down
• The event was a boon for weapons manufacturers. The market correctly anticipated US retaliation. Lockheed Martin rallied 15.46% between
September 7th and December 28th.
Wider Context:
• By the end of the year the market had recovered its September 11 losses.
• This however was short lived with the bear market finally bottoming in late 2002.
• The event defined US foreign policy and launched the “War of Terror”.
• The US subsequently invaded Afghanistan and Iraq.
Technical Analysis of Sept 11:
• Click here
Lessons for Investors:
• What can happen in the markets will happen.
• How will you react during the next significant event?
• We believe that investors should build random market impacts into their investing plan. This reduces the amount of decision making that must happen during times of panic.
• For every major event, there are both stock market winners and losers. Ask
the question, who will benefit and what businesses will be impacted?