What Will Happen to the Markets?

After Thursday’s bomb blasts shocked the streets of London, the Street had its own scare.

The markets (Dow, TSX, FTSE, and NYSE) were obviously initially shaken by the terrorist attacks, not unlike we saw on 9/11. However, by the end of the day, the indices had taken the news “in a stride.”

Before I go into more detail on the effects of London’s recent tragedy on the economic front, I wish to extend my thoughts to those in the UK affected by this senseless act of violence.

Of course, since this is PROFIT CONFIDENTIAL, I’m staying away from commenting on the actual events. Our readers are interested in how big news affects the Street and the global economy, so, today, I’d like to give a little insight into how the attacks affect our money.

When the markets opened last Thursday, investors were frightened. Trading was lower and volatile, but experts are calling the weakness in the markets just a “blip.”

“Major markets already have built in a terror premium… when an incident occurs, unless it’s of catastrophic proportions, the markets take it in a stride,” said Ryan, Beck & Co. Chief Investment Officer Joseph Battipaglia.

By Thursday’s market close, indices in Europe were down only two percent, while North American markets didn’t seem to blink.

In March 2004, when Spain was the victim of terrorist train bombings, we saw a similar phenomenon–the markets moved down only slightly and bounced back quickly. The markets are surprisingly resilient to such events.

We saw the same thing happen in Istanbul in 2003. Its economy expanded in the 12 months that followed the attacks in its country.

“Any economic effect will be relatively limited… there is usually an immediate reaction on the financial markets [after a terrorist attack], as we saw today,” said Aline Schuiling, Fortis Bank Economist.

So, while our hearts go out to London, rest assured that the markets seem to be more shock resistant to terrorist actions than the people behind them are.