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The Stock Market's Response to Dramatic Historical Events, September 14, 2001 1 (September 14, 2001)

handle is hein.tera/crser0235 and id is 1 raw text is: Order Code RS21011 September 14, 2001 CRS Report for Congress Received through the CRS Web The Stock Market's Response to Dramatic Historical Events Mark Jickling Specialist in Public Finance Government and Finance Division Summary The events of September 11, 2001 have caused speculation that the U.S. stock market may crash when trading resumes. History, however, suggests that there is no uniform pattern in which bad news is followed by a stock market plunge. This report presents data on the stock market response to four episodes: Pearl Harbor, the Kennedy assassination, the October 1987 stock market crash, and the Asian financial crisis of 1997. There is, of course, no guarantee that the market will behave now or in the future as it did then. Following the attacks on the World Trade Center and the Pentagon on September 11, 2001, there was much speculation that U.S. stock prices would plunge when the markets reopened. The stock market is of course highly unpredictable, but the historical record suggests that a price drop need not occur, and that, if it does, the effect may be short-lived. The charts on the following pages illustrate the behavior of the Dow Jones Industrial Average on the days before and after four disparate historic events. After the attack on Pearl Harbor in 1941, stock prices declined by about 5% and then recovered slightly, as figure 1 below shows. Since the market was experiencing a generally downward trend during the months before and after the U.S. entry into the war, the long- term effect of Pearl Harbor on stock prices appears to have been minimal. Congressional Research Service °0° The Library of Congress

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