If you were an investor during 9/11 then you feel the parallels between the events of that time and the current pandemic. Then, as now, the life and death issues of the moment overrode concerns about market volatility, although the volatility and point drops came to be expected with each passing day.
The US stock market re-opened on September 17th, after the longest closure for the New York Stock Exchange since the Great Depression. The Dow fell 684 points or 7.1%, which represented one of the largest single day percentage drops in history. Many NY companies and institutions could not open due to collapsed buildings, fires and debris around Ground Zero, which was at the heart of the Financial District. Many firms were still burying their dead or visiting colleagues in the hospital. There were still people missing, their loved ones unsure of what had actually happened to them. Uncertainty doesn’t get more uncertain than it was at that time.
By the end of that week, the Dow had lost 1,370 points, or roughly 14%. Approximately $1.5 trillion in market capitalization had been lost in the US alone, and overseas it was just as bad. The airlines were cut in half in an instant. The banks and brokerage firms were slammed, as were insurance companies like Berkshire Hathaway – insurance companies ended up paying out over $40 billion in 9/11 related insurance claims over the next few years. Investors were in a state of shock.
We knew we would be at war and our way of life would be changed from that moment on. Then, as now, there were questions about the US government’s response, the Federal Reserve’s role in shoring up the economy, what Congress would pass in terms of fiscal stimulus and, of course, the rumors, fears and theories about subsequent attacks. With every suspicious package found in a train station, office building or airport, stocks would stagger lower.
The situation we face today with the Coronavirus draws parallels for me with the post 9/11 environment, in particular, the level of uncertainty associated with a non-financial event and its potential impacts and outcomes.
However, it’s important to point out the differences between then and now.
For one, we were already in a recession before the attacks of 9/11. Additionally, the stock market had already been in a substantial downturn since 1999, after a run up of technology stocks in the 1990s (“Tech Bubble”).
Today, our economy is in a much stronger position and while a recession now seems very likely, we are on a better relative footing economically. Until late February, our economy had been cruising along at around 2% growth. The stock market had a strong 10 year run and delivered outstanding performance in 2019. While the Coronavirus is something we should be extremely concerned with, for me, it pales in comparison to the fear and hopelessness many people shared post 9/11. Yet, the behavior of investors and stock markets tend to react very similarly to the unknowns associated with these types of events.
As we do our best to get through this challenging time, think back to the days that followed 9/11 and try to keep in mind that we’ve been through similar or worse periods of time.
The chart below provides valuable perspective when assessing today’s situation.