The Effect Terrorism has on Wall Street and Global Financial Markets
Terrorist attacks, no matter where they occur, resonates a universal feeling – shock, dread, revulsion and uncertainty. The feeling of uncertainty rings the most, especially on the aftermath of the attack. Who were the terrorists? Will they ever strike again? How did they plan the attack? These are just some of the questions that are often asked after a major terrorist attack.
The effects of terrorism spreads throughout the overall status of a country and its people. The physical mental, emotional, social and economic standing of a country may be disrupted because of these attacks. As someone who has invested or is planning to invest in the financial market, have you ever wondered how the financial markets deal with terrorism aftermath?
Recent Terrorist Attacks
One of the most recent terrorist attacks happened on Brussels on March 22, 2016. The Brussels airport bombing has left 32 people dead. This attack was the latest installment to a series of attacks which seem to be happening with greater frequency.
A couple of months prior to this was a series of attacks which happened in Paris on November 13, 2015 which took 130 lives. This was the worst terrorist attack which happened in Europe in a decade. The Islamic State or ISIS group has claimed responsibility for both of these attacks.
The Impact on the Financial Market
After the Paris attack, the French index – CAC 40, declined above 1 percent just right after the trading opened. However, it also went back up immediately. Same goes with the EuroStoxx 50 index which opened below but quickly bounced back.
Despite all the attacks, Europe continues to be one of the most popular tourist destinations in the world. The Paris attacks has erased more than $2 billion worth of Europe’s leisure and travel companies. Accor S.A., a French hotel group lost nearly 5 percent of its shares, Air France-KLM Stocks also fell nearly 6 percent and Groupe Eurotunnel S.A. stocks edged down more than 3 percent right after the attacks.
The 9/11 Attack
The 9/11 attack is probably the one of the most drastic examples of how terrorism could affect the financial market, especially the Wall Street. The incident happened on September 11, 2001 where the Islamic terrorist group, Al Qaeda, hijacked four airplanes and conducted suicide attacks in the U.S. which killed 2,996 people and injured more than 6,000 others. The total cost of damages reached a staggering amount of $3.3 trillion.
When the stock markets resumed operation in September 17, 2001, the New York Stock Exchange lost 684 points, or a 7.1 pecent decline, setting the record forits biggest loss in an intraday exchange. The Dow Jones Industrial Average (DJIA) fell as low as 8,755.46. Losing over 14 percent from its September 10, 2001 close of 9,605.51. The S&P 500 index also lost 11.6 percent.
The ones who caught the biggest damage were the American Airlines and United Airlines. These were the companies whose planes were hijacked by the terrorists. Insurance firms also had to pay a total of $40.2 billion in 9/11 related claims. Among the biggest losers was the Berkshire Hathaway, owned by Warren Buffet.
The Market’s Resilience
Terrorism has a significant economic impact. However, the U.S economy has proven its resilience, strength, and its optimistic outlook. Just after more than a month, Wall Street’s three major indices – Dow Jones, Nasdaq and S&P 500, has already recovered their pre-9/11 price levels.
The market reacts to each new terrorist attack in different ways. Unfortunately, the influence of terrorism to the international financial market is very real. But with the inherent resilience of investors and consumers, the financial market will most likely stabilize even after initial drops brought by terrorist attacks.