For Some, Stocks are a Weapon in the War

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Except for its proximity to the site of one of the nation’s greatest tragedies, the stock market temporarily became irrelevant last week.

That is, until it was given a new role to play--as a potential weapon of retaliation.

Closed for four of five days, the same market that had demanded so much of Americans’ attention on its way up in 1999 and early 2000, and then on its way down for most of the last 18 months, suddenly lost its place on the country’s list of truly meaningful concerns in the immediate aftermath of Tuesday’s attacks.

There were far more important things to worry about than the prices of shares and the value of retirement savings accounts.


But as the week wore on, the shuttered market became a touchstone for those trying to measure the mettle of the country.

Early in the week a key question was: How will the market react to the reality of massive terrorist strikes on U.S. soil?

By late in the week, with trading still suspended as New York struggled with the enormity of the disaster, many investors’ attitude toward the market, and how it would fare, mimicked the nation’s attitude toward the perpetrators of the attacks: a resolute defiance.

The market, many Americans decided, could be used to deliver a form of payback. Consider:

* A Harris Interactive online poll of 4,600 adults found that 99% said they would not sell any of their stock holdings, despite the substantial new risks to the economy and national security.

* Cisco Systems, one of the nation’s leading technology companies, announced it committed $3 billion to buy back a chunk of its own shares over the next two years, beginning once trading resumes. Cisco CEO John Chambers specifically cited the company’s “tremendous confidence in the financial systems of our country, in our industry and in our market-leading position both today and into the future.”

A deluge of similar announcements could come this week, abetted by the Securities and Exchange Commission, which said Friday that it will allow companies to repurchase shares without being hindered by usual restrictions on timing and trading volume.


* On Friday, Pete du Pont, the former governor of Delaware and current policy chairman of the National Center for Policy Analysis think tank, wrote an open letter to Americans suggesting that, “If you have the means, buy a share of stock as soon as the markets open. This will show confidence in the soundness of the American economy and will show the world and any would-be terrorists that they cannot break the American economy.”

* Also on Friday, a group of U.S. public employee and teacher pension funds holding a combined $2.1 trillion in assets pledged “to continue to provide stability in U.S. financial markets and remain patient, long-term providers of capital.” The group “urged investors to remain calm when markets reopen.”

Just how calm investors will be when stock trading resumes remains to be seen. When trading in Treasury bills, notes and bonds restarted Thursday, a flood of money poured into those securities, pushing yields dramatically lower.

That unquestionably reflected many investors’ desire to keep their money in super-safe assets. It also reflected expectations that the Federal Reserve will push its official short-term interest rate, now 3.5%, down even more, to help an economy that was ailing even before last week’s blow.

In addition, efforts by the Fed and other major central banks to pump huge sums of cash into the global banking system last week helped fuel demand for Treasury issues. That money had to go somewhere.

Even if the Treasury market’s moves didn’t necessarily reflect a tide of fear that could swamp the U.S. stock market when trading reopens, the action in foreign stock markets last week wasn’t particularly encouraging.


European markets, for example, had plunged Tuesday on news of the attacks. Most European markets posted modest gains Wednesday and Thursday, then dived again Friday, as investors apparently worried that U.S. military retaliation could be launched as early as this weekend.

Britain’s key share index slumped 5.7% on Tuesday, gained 2.9% on Wednesday and 1.3% on Thursday, then tumbled 3.8% on Friday. The net loss for the week: 6.2%.

Brazilian stocks fared much worse, losing 18% for the week.

Still, the historical record of U.S. market performance in the aftermath of national calamities is a source of hope to many Wall Street professionals.

The most frequently cited parallel last week was to the assassination of President John F. Kennedy in November 1963.

JFK’s murder “had a similar impact . . . in shattering a widely held illusion,” said Edward Kerschner, investment strategist at UBS Warburg in New York. “There was a widespread disbelief that a U.S. president could be assassinated in the ‘modern world,’ ” he said. Likewise, before Tuesday there was a widespread disbelief that a major attack by foreign terrorists on U.S soil could happen, he argued.

The Dow Jones industrial average slid 2.9% the day JFK was shot. But when trading resumed the following Tuesday the Dow soared 4.5%, Kerschner noted. The index was up 8.8% three months after the assassination.


But Kennedy’s death occurred at a time the economy was strong and the stock market was rallying. By contrast, the terrorists have struck their blow amid a very weak economy and with the stock market near two- or three-year lows, depending on the index you use.

Also retrieved from the historical record last week was the argument that war is actually good for stocks--as horribly insensitive as that sounds. The fundamental basis for that idea is that an economy at war is a busy economy.

But it is at best a half-truth to suggest that military conflict is bullish for equities. It’s true that the market began to rally in 1942, a few months after the attack on Pearl Harbor. It had been falling, however, since 1939, when the war in Europe began (albeit without the involvement of the United States).

Stocks also rallied through the Korean War in the early 1950s. But the market overall struggled through the height of the Vietnam War, from 1966 through 1972.

The market sank in summer 1990 after Iraq invaded Kuwait, setting the stage for the Gulf War. A rally ensued almost as soon as the war began in January 1991 and it became clear that Allied firepower would overwhelm Iraq.

So far this time, the extent of the looming conflict, and its duration, remain unknown to all--including the market. Yet many Americans, as patriots first and investors second or perhaps 222nd, now see the stock market not as a victim, but as a weapon.


The opportunity to lock and load is upon us.


Tom Petruno can be reached at For recent columns on the Web, go to