Initially Jolted, Markets Rebound
Seasoned by painful experience, global markets staggered Thursday but quickly recovered after London’s subway and bus bombings.
“We’ve been through this drill before, unfortunately,” said William D’Arbanville, managing director of White Cap Trading in New York. “People are kind of hardened to it and accept it as a way of life.”
After falling sharply just after the attacks hit London’s morning rush hour, European markets rebounded and -- although still showing losses for the session -- were on the rise at the close of trading. U.S. investors had several hours to absorb the news from London before markets opened here, which traders said helped blunt the effect on Wall Street, where major U.S. market indicators all ended the day in the black.
Stocks related to transportation, tourism and luxury spending generally lost ground, but not as much as might have been expected. Traders said investors remembered that previous geopolitical shocks had led to buying opportunities, so they kept their heads.
For example, the March 11, 2004, train bombings that killed nearly 200 in Madrid caused a 1.5% drop in the S&P; 500 index, but most of the loss was reversed the next day. And unlike the Sept. 11 attacks in New York, which closed down U.S. markets for four days, the London attacks didn’t halt trading. The Dow Jones industrial average fell more than 14% in the first week of post-9/11 trading.
“There was never any panic here,” said Jay Suskind, head of trading at Ryan Beck in Florham Park, N.J. “We knew we’d open lower, but people stepped back and thought about it, and cooler heads prevailed.
“It kind of became business as usual after the first few hours,” he said.
Outside the New York Stock Exchange at lunchtime, there was a somewhat more visible police presence.
But the most noticeable difference was the flock of news reporters -- many of them from foreign TV outlets -- that descended on the intersection of Wall and Broad streets to use the Big Board’s iconic facade and gigantic American flag as a backdrop for their reports.
The first bomb went off just before 4 a.m. Eastern time, about 5 1/2 hours before the start of NYSE trading. The benchmark Dow industrials quickly shed 103 points but steadily recovered as the day went on, closing up 31.61 points, or 0.3%, at 10,302.29. After suffering similar early losses, the Standard & Poor’s 500 index ended the session up 2.93 points, or 0.3%, at 1,197.87, and the Nasdaq composite index closed up 7.01 points, or 0.3%, at 2,075.66.
Gainers outnumbered losers by 6 to 5 on the NYSE, a big shift from early in the day, when losers led by 4 to 1. Gainers also held a slight lead on Nasdaq.
Oil prices initially plunged on expectations that the terrorist attacks would slow economic growth and reduce demand for crude, at one point falling nearly $5 a barrel in pre-market electronic trading.
The Energy Department’s weekly inventory report, released later in the morning, added to the downward pressure when it showed a huge build in the nation’s supply of distillate fuel, which includes heating oil, jet fuel and diesel.
But traders quickly decided that the economic effect of the attacks would be limited. By day’s end, crude for August delivery was down only 55 cents at $60.73 a barrel on the New York Mercantile Exchange.
Perhaps the sharpest early reaction came in currency markets, where the British pound sank to a 19-month low against the dollar. After falling to $1.740 -- its lowest since December 2003 -- the pound recovered to $1.743 in late trading in New York, down from $1.757 on Wednesday.
Also weakening the pound were rumors that the Bank of England would react to the attacks by cutting interest rates. But after consulting the Federal Reserve Board in the U.S. and the European Central Bank, the Bank of England took no action, helping the pound firm against the dollar later in the day.
The dollar, meanwhile, slipped against the euro, the Japanese yen and the Swiss franc. The latter is considered a haven among currencies.
Jittery investors also bid up gold above $430 an ounce immediately after the news from London was broadcast, but the gains evaporated later. August gold futures at Nymex’s Comex division closed down 20 cents at $423.30 an ounce.
Treasury securities, in similar fashion, rallied strongly in early trading but finished the day only slightly ahead. The yield on the benchmark 10-year note -- which moves in the opposite direction from the price -- eased to 4.06% from 4.07% on Wednesday.
“Given the volatility we’ve had lately, if you weren’t aware of what was happening in London, just looking at the numbers you would say it’s a normal day,” said Edward Riley Jr., chief executive of Riley Asset Management.
A similar scenario played out on European bourses, where the trading day was just getting underway as the bombs went off.
In London, the FTSE 100 stock index fought back from a 4% plunge after the explosions, closing down 71.30 points, or 1.4%, at 5,158.30. It was still the index’s biggest one-day point loss since August 2004. Early losses were also partially recouped by Germany’s DAX index, which ended down 85.31 points, or 1.9%, at 4,530.18, and at the CAC-40 index in Paris, which closed at 4,220.62, down 59.33 points, or 1.4%.
In London trading, British Airways shares dropped 4.2%, and Burberry, the upscale clothier, fell 2.9% on fears that consumers would pull back on discretionary spending.
Shares of big insurers also sank. Hilton Group, which operates Hilton hotels outside the United States, fell 3.3%, and InterContinental Hotels Group slid 2.8%.
Airline and hotel stocks were among the early losers Thursday on Wall Street as well. But true to the pattern that prevailed with the broader indexes, they generally gained back most of their losses as the day went on.
AMR, parent of American Airlines, closed at $12.08, down 14 cents, after falling as low as $11.51, and Delta Air Lines fell 10 cents to $3.38.
Starwood Hotels & Resorts Worldwide lost 7 cents to $61.23. Walt Disney, whose theme parks would suffer from a downturn in travel, finished at $24.45, down 34 cents.
Some of Thursday’s biggest winners, unsurprisingly, were defense-related stocks, especially smaller firms that produce, for example, X-ray detection equipment, security cards and video surveillance gear. Big defense contractors showed smaller gains or none at all.
A rally in retail stocks Thursday, based on positive same-store sales at retailers such as Target, Wal-Mart Stores and Nordstrom, indicated that Wall Street had its ears open for news unrelated to terrorism.
Absent any quick follow-up attacks -- particularly on American soil -- investors can be expected to concentrate on economic fundamentals in the days ahead, Riley and other strategists said.
One clue to the longer-term effect came as Asian markets, most of which had closed for the day before the attacks, opened for trading this morning. In Tokyo, stocks were up 0.4% in early trading, although the Hong Kong market was off nearly 1%.
Another test will be the reaction to the monthly U.S. nonfarm payroll report for June, which the Labor Department is scheduled to release this morning. Economists generally expect the number to be at least double the anemic 78,000 jobs added in May.
“It’s amazing how quickly the markets refocus on the things they were looking at before,” Riley said. “There’s a separation of the financial-economic impact, versus the emotional impact of the loss of life and suffering.”
Times wire services were used in compiling this report.
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Climbing back
*--* Pct. Drop at Pct. day’s change Market/Index low point at close France/CAC -4.6% -1.4% Spain/IBEX -4.4 -1.9 Britain/FT-100 -4.0 -1.4 Germany/DAX -3.4 -1.9 U.S./S&P500; -1.0 +0.3 Mexico/IPC -1.0 +0.4 Canada/ S&P-TSX; -0.6 +0.1
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Most Asian markets had closed for the day when the bombings began.
Source: Bloomberg News
Los Angeles Times
