Markets breathed a sigh of relief on 9/11 when no major events took place. Unfortunately, September 11th will carry a legacy with the financial markets for many years to come, adding to volatility around this date with susceptibility to large swings driven by both information and disinformation.
Two years after the crisis events of 9/11, markets and economies have both largely recovered. Not unlike a hurricane or other natural disaster, 9/11 freed up required capital to be allocated to both recovery and reconstruction. This additional stimulus, although not providing immediate impact, several quarters out does provide a significant boost to both economic growth and consumer sentiment.
During the months prior to 9/11 the U.S. economy and financial markets were already showing signs of stagnation and contraction. To some extent there is a silver lining in the events of 9/11, in that Washington's gridlock was temporarily dissolved and allowed for the passing of massive spending bills targeting both reconstruction and security. This spending boost to a large extent has allowed for U.S. economic recovery to gain momentum, explaining in part 2003's double-digit returns.
Historically speaking, "crisis creates opportunity" and 9/11 has proven to be no exception. Through these difficult periods investors who maintained a longer-term focus and adhered to their investment disciplines have been rewarded. Other investors, who emphasized the short-term or demanded liquidity, have generally paid a higher price for such liquidity needs. While other investors, who attempted to "get out" and then "get back in," also missed portions of the rally because it occurred so rapidly. This is just another example of where capturing returns is often more a factor of "time" rather than "timing."
The table below in many ways highlights how equity investors who have stuck through difficult periods have generally been rewarded. The table has been updated and reflects certain crisis events and the reaction of the Dow Jones Industrial Average during the proceeding days.
| Crisis Events and the Reactions of the Dow Jones Industrial Average |
| Event | Reaction Dates | DJIA% Gain/Loss | DJIA %Gain/Loss 126 Days After Reaction Dates |
| Fall of France | 5/9/40-6/22/40 | -17.1% | 7.0% |
| Pearl Harbor | 12/6/41-12/10/41 | -6.5% | -9.6% |
| Korean War | 6/23/50-7/13/50 | -12.0% | 19.2% |
| Cuban Missile Crisis | 10/19/62-10/27/62 | 1.1% | 24.2% |
| JFK Assassination | 11/21/63-11/22/63 | -2.9% | 15.1% |
| U.S. Bombs Libya | 4/15/86-4/21/86 | 2.6% | -1.0% |
| Crash of '87 | 10/2/87-10/19/87 | -34.2% | 15.0% |
| Desert Storm | 12/24/90-1/16/91 | -4.3% | 18.7% |
| Gorbachev Coup | 8/16/91-8/19/91 | -2.4% | 11.3% |
| WTC Bombing | 2/23/93-2/27/93 | -0.5% | 8.5% |
| Orange Co./Russia/Mexico | 10/11/94-12/20/94 | -2.8% | 20.7% |
| Oklahoma City Bombing | 4/19/95-4/20/95 | 0.6% | 12.9% |
| Russian LTCM Crisis | 8/18/98-10/8/98 | -11.3% | 33.7% |
| September 11th Attacks | 9/10/01-9/21/01 | -14.3% | 24.8% |
| Average Return | -7.4% | 14.3% |
| (Source: Ned Davis Research 9/02/03) |
The views are those of Robert Garland, Vice President Product Research, and should not be construed as investment advice. All information is believed to be from reliable sources, however, we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Please consult your financial advisor for more information.
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