Paris. San Bernardino. Istanbul. Brussels. Lahore. Over the past year, it seems the only thing to interrupt constant U.S. election coverage has been breaking news of violent terror attacks from around the globe. The most recent possible attack being linked to the lost EgyptAir Flight MS804, which disappeared over the Mediterranean on May 19. Terrorists hope to create widespread fear and wreak economic damage, and the cost of lost lives can’t be measured. Fortunately, the violence seems to be having less financial impact with time. Investors appear to be standing stronger instead of rushing to sell following such attacks.
According to a March USA Today article by Adam Shell, “The impact of terror attacks on financial markets has become less dramatic and far more muted in recent years, compared with the massive sell-off following the Sept. 11 attacks in 2001, when the broad U.S. stock market tumbled nearly 5 percent in the first trading day after the attack and was down nearly 12 percent five trading days after planes hijacked by terrorists brought down the twin towers at the World Trade Center in New York."
Terror attacks can impact the global economy by affecting consumer confidence, tourism and defense security expenses. These effects are similar to those seen following other unexpected disruptions, such as natural disasters (earthquake, tsunami, etc.) or a man-made calamity like an oil spill. When these events occur, anxious investors’ concerns often cause initial declines in the markets. Eventually, however, markets typically swing back.
Multiple studies of past market data have shown the longer you have money invested in the market, the less volatility your portfolio experiences. That’s because time allows the highest highs to offset the lowest lows. For example, BTN Research reported the total market capitalization of the U.S. stock market was $23.7 trillion as of March 31. At its bear market low on March 9, 2009, the country’s total market capitalization was $8 trillion. That’s nearly triple the bottom in less than a decade. While periods of market negativity, like those following terror attacks, should get your attention, you don’t need to act. They are often temporary and minor in the grand scheme of things.
Don’t let fear affect your plan. Patience, confidence and a well-balanced portfolio can help you manage market fluctuations better – regardless of their cause. To further discuss what effects global terrorism may have on the markets or your personal portfolio, call our office today.