9/11 and The Stock Market

Ever since the attack on the World Trade Center every once in a while I have gotten calls from folk who missed the 150% gains in the SP500 in the ensuing years. Invariably the conversation turns to their worries that another "9/11" event could occur. Fear has a way of paralyzing us, and removing the ability to make a cold hard analysis.

In the 35 years I have been trading I have "lived" through many natural and not so natural large and small "disastera" from the Crash of '87, to the collapse of LTCM in 1998 and indeed the 9/11 event. The remarkable thing is that looking back in history, not one of these events has affected the markets longer than 3 months.

After the crash of '87 a rally began 3 months later that lasted for almost 3 years without a pullback.

LTCM..the first major hedge fund to fail in '98 was far mor cataclysmic yet, again, within 3 months it was all over and prices were actually higher.

Looking at the daily chart around 9/11, we have a diffent picture than you probably remember.

This event was a direct attack on the financial infrastructure. There were at least 3 major brokerage operations that literally disappeared with hundreds of thousands of investors left in limbo as to whether they were insured or if there were even any records of their accounts.

The doom and gloomers immediately came out and said that the markets would not recover for 5 years. Markets were closed for 4 consecutive days for the first time since WWII.

4 days later the selling ensued as the NASDAQ computers came back to life. by the time we reached day 11, it was all over but the shouting, and IN THE NEXT MONTH AND A HALF THE MARKETS CAME BACK AND EXCEEDED THE PRE-ATTACK LEVELS. Markets continued to rally for the next 2 months and this was in the face of an ongoing bear market!!!

The lesson here is that whenever there is a major event, whether good or bad, the markets have a tremendous ability to absorb the news and within short order prices return to the normal trend line.