While terrorism continues to draw headlines and substantial news coverage, investors are no longer reacting to new terror events by pushing markets lower. Over the last twelve months, the largest drawdown for global stock markets, as measured by the MSCI All-Cap World Index, has been 0.4%. The nearby chart identifies the day with the worst market return around key Islamist terrorist events.
A decline of that magnitude is a normal course of investing and may have been primarily a reaction to economic or corporate news. While the event was in the U.S., it resulted in the fewest deaths or injuries of any of the attacks over the last year. In contrast, a May 2017 attack in the United Kingdom that killed or injured 151 people wasn’t viewed as negative enough to move the market lower.
Prior to mid-year 2016, the two main attacks pushed markets around 1% lower. The attack in Brussels killed or injured 335 and an attack in the U.S. inflicted over 100 casualties. The trend reversed with the horrific Paris attack that killed or injured 521. Following the June attack in the U.S. so closely could have distributed investors, but the muted response set the tone for future events.
Why did investors begin to react differently? Primarily because citizens aren’t changing their routines. After so many terror attacks stretching back farther than this graphic, people aren’t as spooked by them. Because the terror attacks have little effect on citizens’ behavior, investors continue to shrug them off.
Terrorism could reassert itself as a market force if the attacks were to increase in their frequency or severity. Based on the chart, unless something changes the tone, terrorists aren’t igniting the terror they would like.
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The views stated should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.