Stocks surged into the close on Monday.
But there was a knee-jerk drop in early trading, following the terrorist attacks in Paris on Friday night that killed 129 people.
The geopolitical uncertainty following these attacks had some analysts wondering if — and how — the stock market would be affected.
But in an afternoon note on Tuesday, the NYSE’s Rich Barry pointed out three reasons why stocks did not capitulate on Monday:
- Stocks were technically oversold coming into the session. US stocks fell by more than 3% last week, and it was particularly bad for retail and energy stocks. And so, some market participants who were short going into the weekend likely scrambled to cover their positions.
- The economic impact after a terrorist attack is usually not as bad as people expect. People postpone consumption instead of abandoning it completely, for example.
- Traders assumed that European Central Bank will likely have more accommodative monetary policy. However, ECB president Mario Draghi had hinted, a day before the Paris attacks, that the bank may continue buying bonds beyond the fall of 2015, when the QE program is expected to end.
The maximum amount of time it’s taken for the S&P 500 to recoup losses after any major terror attack since 1992 was 19 days, after September 11, according to LPL Financial’s Burt White.
Most of the time, it takes just one time.
On Tuesday stock were lower, but little changed.
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