Remembering 9-11: How far have we really come?
It is one of those rare days one can never forget. The first I can recall is the day President Kennedy was shot. Next is probably the day Neil Armstrong walked on the moon. Then there was the day we lost the Challenger space shuttle. But 9-11-2001 easily surpasses all the rest.
It was a day that shattered our illusions of security. It was the first time many of us recognized that people in other nations hate us simply for being Americans.
With regard to the financial markets, in September 2001 the U.S. had already endured an 18-month bear market. By that time many analysts believed the worst was over and a quick recovery was right around the corner. All that changed when the towers fell. Trading was halted or curtailed for several days and when the markets reopened, major indices quickly slid.
The chart below shows how the Dow (black line) and the S&P 500 (gold line) fared in the months preceding and after the 9-11 attacks.
While there were ups and downs in the markets in the ensuing months, there is little argument that the 9-11 events deepened and prolonged the bear market. In fact, it is easy to argue that 9-11 is still significantly impacting the economy when one considers the cost of the ongoing war, changes in security procedures, and the effect of a politically unsettled Middle East. Of course one cnot forget the increased cost of oil as well.
The chart below shows how the same indices have performed through the current day. The blue line and the green line help show the current levels compared to the levels on 9-11-2001. Although both indexes are slightly above where they were on that fateful day, they are well below the highs of 2001.
In other words, thanks at least in part to the attacks of 9-11, buy-and-hold investors who purchased a Dow or S&P 500 index fund in the spring of 2001 have seen zero return on their money in the past seven years. That is a perfect argument against a buy-and-hold approach to investing. There were significant market moves in 2003, 2006 and 2007. Through active management an investor could hope to take advantage of those up markets while stepping to the sidelines during the downtimes.
Currently the financial markets remain in a downturn. From an economic perspective, the situation is much the same as it was prior to 9-11. The current bear market is about to mark a full year. A turnaround could be just a few months away. But an unforeseen event like we saw in 2001 could send the markets plunging from these already low levels.
It is possible, though unlikely, that before this correction is over the indices could retest the lows they made in 2002. We just need to cross our fingers and hope that they can find a bottom before reaching those lows.
F.S.