Market Analysis

Terror Will Never Succeed

Free societies and markets are too resilient for terrorism to materially impact them.

Photo by Kutay Tanir, Digital Vision/Getty Images.

A depressing reality of the modern world is we have to write articles like this one all too often. Again, terrorists have struck. Again, it was Paris, less than a year after the offices of satirical magazine Charlie Hebdo were attacked. Again, more than 100 innocent people are dead, and hundreds more are injured. ISIS has claimed responsibility for the coordinated strike that hit multiple locations across the French capital. Our thoughts and prayers are with the victims and their families; with Parisians; and with the French people.

It's natural to react with horror at scenes like those coming out of Paris since the news broke Friday. Many around the world will need assistance with overcoming the fear and grief brought by the cowards who launched this assault. It is here we think you should focus your energies. Worrying about the impact on stocks-while also natural-isn't necessary.

Terrorism is evil and tragic, but its impact on stocks is fleeting. In this bull market alone, we've seen the aforementioned Charlie Hebdo attacks; the Boston Marathon bombing; 2011's mass shooting in Norway; scores of attacks in the Middle East and Africa. None caused market cycles to shift.

The same holds historically-no terror attack has ever materially impacted stocks for long. That includes 9/11. At the time the planes hit the towers, stocks were nearly 18 months into the Tech-bubble-driven bear market. When news of the attacks broke, US markets elected to close and remained shut until September 17. When they reopened, stocks fell sharply. However, a mere 19 trading days later, stocks had rebounded to September 10, 2001 levels. And again, this was during a pre-existing bear market wholly unrelated to terrorism. While September 11 was clearly a watershed moment in recent history, stocks proved their resilience and showed terrorism is simply not strong enough to derail markets.

After 9/11, most Westerners became far more attuned to terrorism. While it is still a shock when strikes happen, these events lose some of their surprise power because, sadly, we all expect them at some level. They are part of our consciousness today in a way they weren't before 9/11. This is arguably why subsequent terrorist acts have shown even less power to sway stocks. Volatility accompanied 2004's attacks in Madrid, Spain, but the S&P 500 rebounded within five days. Spanish stocks took longer to recover, though markets there also had to contend with a hotly contested election three days after the attack. US stocks initially wobbled on the news of the attack on London on July 7, 2005, but finished up that day. (UK stocks fell that day but gained it all back on July 8.) The Boston bombing struck April 15, 2013. After initially declining some, stocks turned higher and regained April 12 levels in 11 trading sessions and continued rising, en route to a great year.

All this is to say worries over terrorism's market impact are understandable but misplaced. Thinking terrorism will materially hamper markets gives the perpetrators of these strikes far too much credit. History shows they simply don't have that power. Don't give them undue credit by fearfully reacting with your investments.

In this way, stocks are something of a microcosm of the ongoing fight against terror. When a strike happens, it is typical and perfectly understandable that fear and focus on that event rules the day. But we'd humbly suggest there is one broader theme that can get lost at times like the present: For all the terrorist attacks in recent years, free societies remain free; the world economy is growing; folks are living longer, healthier lives; young people are going to college, getting married and starting families; friends are enjoying each others' company; older people are retiring and enjoying their grandkids. So for all their efforts over the last 14 years, terrorists have failed in their mission to instill a chilling fear across the free world. We see little reason to believe it will be different this time.

Free nations are by nature susceptible to these kinds of attacks, and it is this that terrorists prey upon. However, what they fail to appreciate is that this very freedom isn't a soft underbelly-it is a fountain of hope, a license to innovate and achieve, and a key source of strength. While there are undoubtedly many who will need help overcoming the pain of the attacks in Paris, we are confident that in due time free nations and free people will overcome.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.