skyward and sparking a U.S. military buildup in Saudi Arabia. The rise
in oil prices combined with an already slowing U.S. economy to drive
the United States deeper into a recession. The stock market fell precipi-
tously, and on October 11, the Dow slumped over 18 percent from its
prewar levels.
The United States began its offensive action on January 17, 1991. It
was the first major war fought in a world where markets for oil, gold,
and U.S. government bonds were traded around the clock in Tokyo,
Singapore, London, and New York. The markets judged the victors in a
matter of hours. Bonds sold off in Tokyo for a few minutes following
the news of the U.S. bombing of Baghdad, but the stunning reports of
the United States and its allies’ successes sent bonds and Japanese
stocks straight upward in the next few minutes. Oil prices traded in the
Far East collapsed, as Brent crude fell from $29 a barrel before hostilities
to $20.
On the following day, stock prices soared around the world. The
Dow jumped 115 points, or 4.4 percent, and there were large gains
throughout Europe and Asia. By the time the United States deployed
ground troops to invade Kuwait, the market had known for two months
that victory was at hand. The war ended on February 28, and by the first
week in March, the Dow was more than 18 percent higher than when the
war started.
As noted at the outset of this chapter, the War on Terrorism began
with the terrorists’ attacks on New York and the Pentagon on September
11, 2001. The Dow Industrials were down 16 percent from their close of
9,606 on September 10 to an intraday low of 8,062 reached on Friday,
September 21. But the market rebounded sharply by the next week, and
it had recovered to 9,120 by the time the United States began offensive
action against the Taliban in Afghanistan on October 7.
Because of aggressive easing policies by the Federal Reserve and
the successful execution of the Afghanistan war, the Dow surpassed its
September 10 level on November 13 and continued rising to year-end.
From its intraday low on September 21 to its intraday high of 10,184 on
December 28, the Dow rose an astounding 26.3 percent in three months.
The market continued its rise to 10,673 on March 19, 2002, but the
bear market, which had begun two years earlier, was far from over. A
sluggish economy, combined with the accounting scandals of Enron,
WorldCom, and others, sent stocks into another dive that didn’t end
until October 10, 2002, when the Dow hit an intraday low of 7,197.
From the intraday high of 11,750 reached on January 14, 2000, through
the October 10, 2002, low, the Dow Industrials fell nearly 39 percent, a
234 PART 3 How the Economic Environment Impacts Stocks