As Terror Episodes Increase, So Has Global Market Resilience

Markets’ Knee-Jerk Reaction to the Paris Attacks
  • Paris murders come at a sensitive time for investors worldwide
  • Reactions to past attacks have been swift and mostly short

French stocks were resilient after attacks killed scores of people in Paris Friday, reprising a trend in financial markets over the last 15 years where reactions to terror incidents have become increasingly short-lived.

France’s CAC 40 Index closed little changed, paring a drop of as much as 1.2 percent and even briefly rising 0.3 percent. The murder of at least 129 people in a coordinated plot linked to Islamist radicals occurred at a fraught time for global stocks, thrusting geopolitical anxiety to the top of a list of concerns that caused volatility to surge in recent months.

It’s been more than 10 years since Europe experienced terror attacks of comparable scope. Past incidents, such as bombings that killed 191 people on Madrid commuter trains in March 2004 and left more than 50 dead in London in July 2005, spurred selloffs in equities that were erased days or weeks later. French stocks traded without interruption Monday as Euronext Paris observed a normal schedule.

“People will want to stand together and say we’re going to act as normal as possible,” said Matt Maley, an equity strategist at Miller Tabak & Co. in New York. “It’s going to affect what people do in France and throughout Europe, but the markets are still going to be open on Monday morning.” 

Here’s a look at how past terror incidents affected markets.

Sept. 11, 2001: New York

U.S. markets shut down after the 9/11 attacks that killed almost 3,000 people and brought down the World Trade Center’s twin towers. When equity trading resumed the following week, the Standard & Poor’s 500 Index slumped 12 percent in five days, the most since the aftermath of the October 1987 crash. By Oct. 11, it had recovered its losses.

Gains in Brent crude, up 5.5 percent the day of the attacks, were erased within a week. Yields on 10-year Treasuries fell, reaching a low in early November, before recovering their pre-attack levels later that month. The dollar, which tumbled the most since 1998 on Sept. 17, had wiped off declines by the following month.

Oct. 12, 2002: Bali

The benchmark gauge for Indonesian equities sank 10 percent, and the rupiah fell with the nation’s bonds after bombings in a Bali nightclub killed more than 200 people. By November, the Jakarta Stock Price Index had erased the slide. It ended the year up 8.4 percent.

March 11, 2004: Madrid

Bombings in commuter trains killed 191 people. That day, Spain’s benchmark IBEX 35 Index fell 2.2 percent, the most since the previous November. It dropped through March 15, when it reached its lowest level of the year, before rebounding to its pre-bombings level by the beginning of April.

July 7, 2005: London

The benchmark FTSE 100 Index fell 1.4 percent, the most in almost a year, as bombs killed more than 50 people in subway attacks. The gauge recovered the next day. The yield on 10-year gilts slipped eight basis points before rebounding the next five days. The pound, which weakened 0.7 percent against the euro, continued its decline before recovering the following month.

With respect to Paris, “People have had the whole weekend to digest and think through the news, which tends to subdue potential ‘surprise effect’ moves,” said Kay Van Petersen, strategist at Saxo Capital Markets in Singapore. “The markets also have a very adaptable habit of adjusting to repeated events, with less and less impact being seen over time.”

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