been open, nearly $300 billion would have been wiped off of U.S. stock
values. But then, miraculously, buyers did appear. Despite the enormity
of the events unfolding, some traders bet that the market overreacted to
these attacks and decided that this was a good time to buy stocks. The
futures firmed and ended the session at 9:15 down about 15 points, gain-
ing back one-half of the earlier loss.
Despite this comeback, the gravity of this attack quickly sunk in.
All the stock, bond, and commodity exchanges first delayed opening
and then canceled trading for the day. In fact, stock exchanges in the
United States would remain closed for the remainder of the week, the
longest closing since FDR declared a “Bank Holiday” in March 1933 to
try to restore America’s collapsing banking system.
Foreign stock exchanges, however, remained open. It was 2 p.m. in
London and 3 p.m. in Europe when the planes struck. The German DAX
index immediately fell over 9 percent and ended the session around that
level. London stocks suffered but not as much. There was a feeling that
with the world’s financial center, the United States, vulnerable to attack,
some business might move to the United Kingdom. The British pound
rallied, as did the euro against the dollar. Normally it is the U.S. dollar
that gains in international crisis. But this time, with the attack centering
on New York, foreign traders were unsure which direction to go.
When the New York Stock Exchange reopened the following Mon-
day, September 17, the Dow Industrials fell 685 points, or 7.13 percent,
the fourteenth-largest percentage drop in its history. The Dow continued
to fall during the week and closed Friday, September 21, at 8,236—down
more than 14 percent from its September 10 close and nearly 30 percent
from its all-time high of 11,723 reached on January 14, 2000.WHAT MOVES THE MARKET?
It was vividly clear why the markets fell after the terrorist attacks. But it
might surprise investors that in the vast majority of cases, major market
movements are notaccompanied by any news that explains why prices
change. Since 1885, when the Dow Jones averages were first formulated,
there have been 126 days when the Dow Jones Industrial Average has
changed by 5 percent or more. Of these, only 30 of these major moves
can be identified with a specific world political or economic event, such
as wars, political changes, or governmental policy shifts. That means
that less than 1 in 4 major market moves can be clearly linked to a spe-
cific world event. A ranking of the 51 largest changes is shown in Table
13-1a, and market changes greater than 5 percent that are associatedCHAPTER 13 When World Events Impact Financial Markets 223