Story #6 – September 11, 2001

When history books look back at the 2000’s, September 11, 2001 will undoubtedly standout as the most significant single date. It was the first time that the continental United States had suffered a foreign attack since the War of 1812 and brought the nation to a standstill like no event since the Kennedy assassination.

The terrorist attacks hit the worldwide heart of financial markets – Manhattan. Immediately, there was great fear about how much the physical infrastructure of America’s financial system was damaged. The NYSE was closed for four days, the longest closure since 1933, and when it reopened on September 17, the Dow Jones Industrial dropped 684 points, the largest one-day decline in history up to that point. Every day that week the Dow moved lower, losing over 1,500 points 9,605 to a low of 8,062 during midday on September 21.

This drop in the stock market was part of a larger flight to quality. Traditional safe-havens such as Treasury bonds and gold rallied. Treasury bonds gained 5.5% and gold rallied 7.9% by the end of September.

But after the initial panic subsided, the market rallied. Part of the story of 9/11 for financial markets is just how quickly normalcy returned. By the end of the year, the Dow Jones Industrial Average and S&P 500 were trading higher than on 9/10/2001. Consumers did not go into hiding and the American lifestyle remained firmly intact. Therefore, the market was able to regain its footing and avoid any long-term damage from the terrorist attacks. Not until the corporate scandals hit the news in 2002 did the bear market regain its grip on equities.

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