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Stock Market Reactions to Disasters and Shocks
updated 09/12/2001
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In light of the recent attack on the United
States in New York, Washington, and Pennsylvania, we have put together
the following charts showing the stock market's reaction to various
disasters that occurred in the past. We have included several charts
showing the stock market's reaction over various time frames. This
first chart shows the reaction of the Dow Jones Industrials to various
disasters and shocks. The lines represent percentage returns over the
month following the event. |
| None of the events in the above chart offer a
perfect parallel to the current situation. In fact, none of them are
even very close. And of course, this chart does not account for the
market conditions immediately before the event.
But all of the events created represented an
unexpected shock to the system and generated emotional reactions, and
from that perspective, they are worth looking at. As you can see, the
reactions to the events where quite varied.
Here is what happened in the stock market in the
days immediately following each event.
| |
Day 1 |
Day 2 |
Day 3 |
| Pearl
Harbor |
-2.93% |
-2.84% |
-0.27% |
| Cuban
Missile |
-0.82% |
-1.86% |
+3.35% |
| JFK |
-2.89% |
+4.50% |
-0.34% |
| Lusitania |
-4.55% |
-4.61% |
+4.03% |
| Oklahoma
City |
+0.68% |
+0.55% |
+0.93% |
| Kuwait |
-1.20% |
-1.92% |
-3.32% |
| USS
Maine |
+1.11% |
-2.14% |
+0.57% |
| Russian
coup |
-4.95% |
+2.54% |
+1.29% |
One note about the above table... the returns are for each individual
day, they are not cumulative. In other words, for Pearl Harbor, on the
first day after the attack the market dropped 2.93%. On the second
day, it dropped another 2.84%. And on the third day it dropped
an additional .27%. In addition, the returns for the Cuban Missile
Crisis were started on Monday, 10/22/62. That was the day that
President Kennedy informed Senate leaders about the
missiles.
OK, let's step back
and take a look at the slightly bigger picture. Here is a similar
chart to the one above, but it looks at a three month period... |
| As you can see, the reaction to many of these
disasters was a drop of about 5% to 10%. That is about what the
reaction was in many of the European markets immediately after the
attack this past Tuesday. After the initial shock, those markets
stabilized and moved slightly higher in subsequent days.
Taking one more step back, here is another chart,
this time with a look one year forward. |
As the chart above shows, the market had a
positive return in the year following every event except the attack on
Pearl Harbor. And the return after Pearl Harbor was only slightly
negative, and that was one news shock that was followed by a steady stream of
bad news for the United States for quite a while. Finally,
we will take one more step back and look at the really big picture.
This chart shows a five year perspective: |
| As with most long term charts of
the market, this one shows that the long term path for the market
is higher. Five years later, the market had a positive return
after each of the eight events represented on the chart. This is a
helpful perspective to keep in mind over the next few emotional
days and weeks. |
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