The 'Four Horsemen' actually ride bulls
The stock market always seems to stay strong (or even rally) in the face of war, famine, pestilence and death.
On Friday, I wrote here about my top Chilean stocks that were unshaken by the earthquake. These companies clearly show the opportunity in this Latin American country even as it digs out of the rubble from a severe 8.8-magnitude earthquake.
I’ve been looking at a lot of data recently regarding the stock market in the wake of massive earthquakes in Chile and Haiti, and I started to wonder if it’s common for Wall Street to stay so cool in the face of severe disasters. After some research, I was surprised that the answer is a resounding “yes!” Let me show you with several brutal events that failed to shake the market:
September 1939: After Hitler launched World War II by invading Poland on Sept. 1, 1939, the market unexpectedly soared, rising 16.85% on the month.
Nov. 25-29, 1963: President Kennedy was shot and killed in Dallas on Nov. 23. The market rose 5% the week after.
Jan. 29, 1986: A day after the Challenger’s launch disaster, the market ticked up modestly and then rose two out of the next three days.
Nov. 1, 2001: Just 19 days after Sept. 11, the Dow reclaimed its previous level of 9,600 and continued to rally well into spring 2002.
Or put another way, the biblical Four Horsemen appear to be riding bulls! (Read a full listing of instances of the markets' resilience in the face of War, Pestilence, Famine and Death.)
There are a number of theories as to why horrific events fail to grab investors’ attention. The first, which I don’t put any stock in, is that “broken windows” create jobs. The theory is that as events like war or disaster destroy things, the companies that build and repair those items find new opportunities. Several economists debunked this myth, since it’s basically a shell game where gain or loss is dependent on the merchant. It’s not shared success for all.
I lean towards the theory that the market loves to focus on financials, and that as long as banks are fine then all of Wall Street will be fine … but it’s much more complicated than that, of course. It’s always hard to isolate the psychological factors of investing and how they work on normal days, let alone during a crisis.
For whatever reason you choose, there is some cold comfort in knowing that no matter how tragic the world's events may seem, the market is one thing we don't need to worry about when sudden tragedy strikes. And, if you're in a trading mood, it might be a good strategy to buy after the market's first knee-jerk drop.
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