Matt Lampert, director of research at the Socionomics Institute, sheds some light on the relationship between terror attacks and the markets and tells you what to watch out for in the future, all in this 3-minute interview.
Alexandra Lienhard: First Manchester and now London Bridge. Add to that attacks earlier this year in Paris and Stockholm and many other terrorist-related incidents. While certainly of secondary importance, a question some might have is what impact does terrorism have on the stock market? Joining me today to offer some perspective is Matt Lampert, the Director of Research at the Socionomics Institute. Hi, Matt. What can you tell us about the correlation between terrorism and the stock market?
Matt Lampert: Alex, these events are dramatic, they’re visceral. And for that reason, it’s so important to step back and objectively surveil the landscape and surveil the history to understand what impact, if any, these sorts of events have on the stock market. And my colleagues at Elliott Wave International and the Socionomics Institute have studied the history of terror attacks, not just in the US and the UK, but in every major global region, and they’ve reached one simple conclusion. And that is, intuition suggests that these sorts of events drive stock prices down. But in fact, there is no systematic evidence that terror attacks make the market go down.
AL: So Matt, it sounds like what you’re saying is this research holds for all major attacks, regardless of where they occur globally, such as what happened in New York on 9/11.
ML: Even something as dramatic as the September 11th attacks actually turns out to be a very interesting illustration of this point. In fact, it’s so interesting that Robert Prechter describes it in the first chapter of his new book. He talks about how the 9/11 attacks occurred in the midst of a decline in the market. The market had been going down for 17 weeks. After the attacks, that trend continued for a total of five trading days. But then the market found a bottom, and there was not just a rally, but the biggest rally since the top. And this wasn’t the only terror-related event going on around this time. There was also a series of anthrax mailings, where someone was sending anthrax laced letters through the mail to high profile folks. There was a session of Congress that had to be evacuated because of this. And if you look at what the stock market was doing around this time, that attack, the very first mailing happened on the very bottom day of the year, and the market actually rallied throughout the entire period of these mailings. So as Prechter says in the book, these two cases alone are enough to show that these sorts of terror attacks do not make the market go down.
AL: Matt, so if these sorts of events don’t move the markets, then what does?
ML: At the Institute, we study how social mood drives social action. So if you want to understand the market, the first thing you have to understand is that markets are made up of people, people who have feelings. And if you know how they’re feeling, then you’ve got a leg up on anticipating their actions. So what we do is we study trends in social mood, and we use those trends in mood to forecast and anticipate the kinds of actions that we expect to see in the future.
AL: Matt, that this is obviously an intense and serious issue. When looking ahead, what’s on your radar for the next six months or so?
ML: One thing we’re watching very carefully are not only stock market indexes priced in nominal terms, but also stocks priced in real money, in other words, gold. In the US, Dow/Gold topped in 1999, and we’ve been in a long-term bear market by that measure ever since. And we think that if the nominal indexes join these real money indexes on the downside, that’s going to be a sign that social mood is becoming much more negative.
AL: Matt, thanks so much for offering these insights today.
ML: Thank you, Alex.
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