In London last Wednesday, Khalid Masood, a 52-year-old Muslim, drove a car into pedestrians on Westminster Bridge, killing three people and injuring at least 50 others.
He then crashed the car outside Parliament and -- armed with two knives -- tried to enter the building. He stabbed an unarmed police officer who later died of his injuries. Police then shot the assailant dead.
Minor Bumps
A few years ago, an attack like this would have sent the financial markets into a tailspin. Yet as the media beamed saturation coverage around the globe, world markets shrugged.
There was no effect on U.K. or global stocks, government bonds or precious metals.
The pound took a slight dip against the dollar. But it took it less than 30 minutes to recover.
This is something new. Following prior terrorist attacks, investors sold local shares and currencies, betting that the event would dampen business confidence and hurt tourism.
For example, following the attack on London’s public transport system on July 7, 2005 -- sometimes referred to as 7/7 -- the FTSE 100 immediately plunged 3.5% before staging a partial recovery.
In 2004, explosions on trains in Madrid caused Spain’s IBEX 35 share index to sell off.
But investors are getting used to tragic news like this. The response is now muted.
In the aftermath of the attacks in Brussels a year ago that killed dozens, for instance, the Euro Stoxx 50 index sold off briefly but actually recovered to end the day higher.
Quick Assessment
Today, there is no knee-jerk reaction, no panic-selling. Instead, investors assess the damage and try to estimate whether the attacks are likely to affect tourism, consumer spending and economic growth.
Business people now understand that attacks like these are an unfortunate part of everyday life. The violence may be shocking and the human suffering tragic. But if there is no reason to believe the fundamental economic outlook has changed, investors don’t sell stocks and buy bonds -- or dump the local currency.
Of course, Wednesday’s attack -- while brutal -- was not catastrophic like 9/11.
When that happened, the New York Stock Exchange shut down for the rest of the week. When it reopened the following Monday, the Dow fell 7.1% on the first day of trading. It ended the week off 14%.
Gold rallied 6.5% as soon as it began trading. And investors poured money into the traditional safe haven: U.S. Treasurys.
There hasn’t been another attack to rival 9/11 in the last 15 years. But terrorism itself is on the rise.
Around the world, terrorist incidents occur almost every day. There are shootings, stabbings, car bombs and assassinations.
And while government agencies, law enforcement and Special Forces are all working to combat the problem, there is no real solution. Disaffected individuals with real or perceived grievances -- often stoked by religious zealotry -- are not easily controlled.
It’s tough to deter an enemy who is eager to die.
Limited Impact
While the human cost can be devastating and long-lasting, the evidence suggests the economic pain is often limited and the effect on financial markets may be minimal.
It’s a sad reality, but in today’s world, investors have decided that terrorist attacks are something we’ll have to live with.
Don’t get me wrong. Financial markets aren’t terror-proof. A hugely destabilizing attack would have serious consequences.
But world markets have grown terror-resistant.
Good investing,
by Alexander Green, Chief Investment Strategist, The Oxford Club