Investors wary after latest attacks

By Meg Richards
Associated Press

NEW YORK — A wave of bombings in Turkey over the past week revived fears of terrorism on Wall Street, but the attacks didn't send stock prices plunging — while the market closed the week with a loss, it drew strength from the steadily improving U.S. economy.

A Turkish policeman stood guard yesterday in front of an HSBC Bank in Istanbul as workers cleaned debris from Thursday's explosions. Multiple explosions, including one at the British Consulate, left 32 dead and more than 500 injured. Associated Press

Still, the violence in Istanbul resonated with investors, who saw the markets drop sharply following the terrorist strikes of Sept. 11, 2001. For many it was a reminder of the economy's vulnerability, said Todd Salamone, director of trading at Schaeffer's Investment Research in Cincinnati.

"When we see attacks on other people's soil, it brings that fear back and may cause investors to take action," Salamone said. "But they might not act as urgently as they would if it were happening here."

The fact that the attacks were not domestic and that they happened in a country that is not a large trading partner with the United States lessened the blow considerably, said Richard J. Nash, chief market strategist at Victory Capital Management. Although Wall Street might not see Turkey as significant, it is an important political ally of the West.

"Not to sound callous to what has gone on in Turkey ... but from an economic standpoint, most investors are focused on the domestic economy," Nash said. "That said, terrorism is certainly being talked about on trading floors more than it was a week ago."

The Dow ended the week down 140.15, or 1.4 percent, finishing at 9,628.53. The Standard & Poor's 500 fell 15.07, or 1.4 percent, during the week, to 1,035.28. The Nasdaq composite index declined 36.38, or 1.9 percent, to close the week at 1,893.88.

In addition to the attacks, economists said trade issues with China, concern over protectionist policies and a weakening dollar also contributed to the week's declines. Skittish investors had many reasons to seek safer positions in the bond market and in value stocks.

For many, however, the unpredictability of terrorism remains a most unnerving factor, said Sherry Cooper, chief economist at BMO Nesbitt Burns. The uncertainty of what might happen next, and whether the next strike might be closer to home, could cause nervousness for some time.

"If all that's going to happen is what happened, then that's fine. But none of us know if this is all there is," Cooper said. "If you get a major event on U.S. soil, there's no question it would cause a great deal of upset. But we saw from 9/11 the resilience of the economy."

When terrorists struck the World Trade Center and the Pentagon, killing nearly 3,000 people, the U.S. economy was already in recession. Investors rushed to sell stocks after trading resumed Sept. 17, 2001. The Dow Jones industrial average lost 684.81 points, or 7.1 percent, that day, closing at 8,920.70. The Nasdaq composite index shed 6.8 percent and the Standard & Poor's 500 lost 4.9 percent.

"It seemed like everything just stopped," recalled Salamone, of Schaeffer's. "You think of workers, and the distraction of being glued to the TV ... you don't exactly go out and buy a car or buy a new dress when something like that happens."

Now that it has happened, the market's reaction to domestic terrorism is likely to be more contained in the future, "because it's less of a surprise," said Josh Feinman, chief economist for Deutsche Asset Management.

"It's unfortunate that this is the world we live in now, but it's reality," Feinman said. "People recognize that they are going to have to adjust to the fact that we're going to see terrorist strikes from time to time."

The Russell 2000 index, which tracks smaller company stocks, ended the week down 7.03, or 1.2 percent, closing at 525.93.