General News
Wednesday, September 12, 2001
Past Nonfinancial Crises Knocked Market Lower But Stocks Bounced Back
By Ken Hoover
Investor's Business Daily
There are days that live in infamy, moments when our world seems to be crumbling beneath our feet. There are also days when our portfolios don’t seem important. Who cares about the stock market when the nation is under attack? Or our personal survival threatened?
Investors react to uncertainty by pulling back. So, the market sells off. What happens after that depends. In most cases, the rebound is quick. The crisis passes. If it’s protracted, the downturn can be protracted, too.
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Image: Times Of Crisis
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Take the examples of four nonfinancial events that shook the markets:
The Japanese attack on Pearl Harbor, Dec. 7, 1941.
President Eisenhower’s heart attack, Sept. 24, 1955.
The Cuban missile crisis, Oct. 18-29, 1962.
The assassination of President Kennedy, Nov. 22, 1963.
“All of them are different,” said money manager L. Roy Papp, 74, who runs just under $1 billion from Phoenix, Ariz. He’s been in the market 46 years.
Contrasting Tuesday’s terrorist attack with the Cuban missile crisis, he says, “It wasn’t the kind of thing where a lot of damage was done. It was the fear. This time, something big has happened.”
He thinks the markets will sell off when they finally open, but recover, probably fairly quickly. His hunch is grounded in history.
Pearl Harbor Hit Bear Market
When the Japanese planes roared over Pearl Harbor on Sunday morning, the market was already in trouble. The U.S. wasn’t at war. But the situation in Europe was grim.
The fall of Paris in May 1940 hit the markets hard. The Dow tumbled 23% from May 9 to May 21. That’s about where things stood when the market opened Monday, Dec. 8, 1941. The Dow fell 3.1% that day, from 115.90 to 112.25. It fell 2.7% the next day. A year-end rally failed, and the market headed down until April 28, 1942, hitting bottom at 92.92, a drop of 19.8% since the attack.
Then it did what it always does: looked ahead to a better day. Even as the war slogged on, a new bull market was born.
Ike’s Heart Attack
In retrospect, Eisenhower’s heart attack doesn’t seem in the same league with other crises. But it looked that way to Wall Street at the time.
Stocks were amid a rip-roaring bull market when Ike was hospitalized over the weekend. The Dow had closed Friday at 487.45. On Monday morning, the blue chip average gapped down, closing 5% lower on more than three times normal volume.
While Ike’s life hung in the balance, the market rallied for a couple of days, then sold off, hitting a low of 438.59 on Oct. 11. That was 10% below the market’s level before the heart attack.
As the president improved, so did the market. The Dow climbed back to just under 500 by Nov. 16. The bull roared on.
Cuban Crisis
Stocks were four months into a bull market, but faltering in a correction, on Oct. 22, 1962. That night Kennedy announced to the nation the discovery of Soviet missiles in Cuba. He ordered a naval blockade, preventing Soviet ships from reaching Cuba.
Soviet leader Nikita Khrushchev was defiant. For several days, it seemed like the world was headed toward nuclear war.
The morning after Kennedy’s speech to the nation, Oct. 23, the Dow dropped 1.9% to 558.05. The next day, the crisis was still in full swing. It wouldn’t be until the following day, Oct. 24, that a showdown on the floor of the U.N. would occur. Also on Oct. 24, American military readiness was raised to DEFCON2, the highest level of nuclear alert in the nation’s history.
But the market looked ahead on Oct. 23. After dropping 1.5% to 549.65, it staged a powerful afternoon rally, closing up 4.9% for the day on enormous volume.
Even as the nation held its breath, the Dow roared ahead in the days to come.
Assassination During Trading
The Kennedy assassination was the only of these four events to hit the news wires during the trading day. The market dropped like a rock that Friday. It was down 2.9% at 711.49 when the New York Stock Exchange closed for fear of panic selling.
By the next Tuesday, when the market reopened, the nation was reassured that Lyndon Johnson was in charge. The market gapped up, closing 4.9% higher for the day. |
