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History in Perspective - After the Storm

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The stock market has recovered the more than $1 trillion in lost market cap value it had lost since the September 11th attacks. Despite the encouraging rally, many investors are understandably shaken by the terrorist attacks and a future clouded with uncertainty and new risks. A long list of fallen, television images of exploding bombs and violent protests, and the unimaginable threat of weapons of mass destruction on our own soil loom in every headline.

In times like these, we tend to look back on history to gain perspective and, if possible, learn from the mistakes of the past. And history tells us that America can bounce back after devastating losses and new challenges, and that panic selling never works. So as we close another quarter that has seen equity indexes plummet, let's take a look at our past and see if we can find something to be optimistic about.

The chart below marks several of the darker moments in our nation's history and how the Dow Jones Industrial Average reacted the next day, a half year later, and a year later. What we see gives us hope for the near future anyway.

The Dow Jones Industrial Average Reacts to Dark Days in History
Crisis Date Following Trading Day 6-Months Later 1-Year Later
Pearl Harbor
12/07/41
-3.50%
-9.48%
-1.37%
Korean War
06/26/50
-0.79%
7.36%
15.13%
Sputnik Launched
10/04/57
-0.88%
-5.44%
14.58%
Cuban Missile Crisis
10/22/62
-1.85%
25.05%
31.41%
Kennedy Assassination
11/22/63
-2.89%
12.04%
21.58%
Gulf of Tonkin Attack
08/04/64
-0.90%
7.58%
5.18%
Vietnam Conflict
02/26/65
-0.41%
-0.81%
5.48%
Nixon Resigns
08/08/74
-1.59%
-10.74%
2.53%
Reagan Shot
03/30/81
-0.26%
-14.56%
-17.12%
Hostages in Grenada
10/25/83
-0.69%
-7.10%
-3.31%
Kuwait Invasion
08/02/90
-1.20%
-5.81%
3.69%
WTC Terrorist Attack
09/11/01
-7.12%
-
-
Source: Dow Jones Indexes, special thanks to Karishma Thakkar

Of course, some folks will say that we're involved in a new war with different rules that make the old comparisons obsolete. But if you look at the events on the list, Americans living in each period would say they were facing a new challenge that defied previous example. The only thing we can know for certain is that the next challenge will be different, because it always is.