The impact after JFK
The 1963 assassination of John F. Kennedy was terrifying for most Americans, who initially saw it as an attack upon U.S. society by unidentified -- probably foreign -- conspirators. (Some, of course, still see it that way.) The stock market dropped 2.9% the day J.F.K. was killed. But stocks rose 4.5% on the next trading day -- one of the best daily returns of the 20th century -- and kept right on going, gaining 25% over the next 12 months.
The stock market also shrugged off the first attack on the World Trade Center, when six people were killed and more than 1,000 injured by a bomb set off in the garage by terrorists on Feb. 26, 1993. Stocks dropped only about 0.5% the next day and rose about 13.7% over the next 12 months.
Finally, it's worth taking a look at the Tel Aviv stock market, since Israel has been struck so repeatedly and destructively by terrorism. Over the past five years, according to Morgan Stanley Capital International, the Israeli market (which consists largely of technology stocks) has gained an annualized average of 12.2%. Over the same period, U.S. stocks generated a 13.2% compound return. (The Israeli returns include a 42% loss over the past 12 months, which has been driven as much by the fall of technology stocks around the world as by the rise in violence within Israel.)
Overall, the Israeli experience suggests that the traumatic toll exacted by terrorism does not necessarily extend to the financial markets. The modern financial history of the U.S. holds no example of a physical disaster, or even an outright war, that wreaked lasting havoc on investment returns. (The high inflation and bear markets of the 1970s were produced only in part by the Vietnam War.) Of course, the World Trade Center attack, which already stands apart from all normal experience, could turn out to be an exception in financial history too. But the odds seem against it.
"In a world where time appears to be measured in terms of the last trade," says Brian Thompson, executive director of the Museum of American Financial History, "there is a long-term view, and in the end it always prevails." (Thompson himself is a survivor of the attack; the financial museum, based just six blocks southeast of the World Trade Center, was bombarded with debris and filled with dust.) "Wall Street is predicated on optimism," adds Thompson. "The very acts of raising capital and making investments are based on the simple belief that tomorrow will be a better day. And that's what makes economic growth and opportunity possible."