Some Thoughts on Paris

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Nov 18, 2015 2:04:39 PM

and tagged In the News

Leave a comment

ParisAs you might imagine, I’ve been thinking about Paris a lot the past couple of days: the usual rage and horror, the usual thoughts about what can be done. But the saddest part about it for me? It's just two words—“the usual.”

Impact on the financial markets

I did a couple of interviews on Monday about the impact of the attacks on the financial markets. The interviewer seemed surprised that I didn’t think there would be any. In fact, markets went up, defying expectations. How could this be?

I suspect the real reason was the attacks took place over the weekend, so people had a chance to process them before returning to the markets. If you look at previous attacks—Madrid and London—there was a sharp downward reaction, but it was short-lived. This time, we got through our sharp reaction outside of trading hours, so it didn’t show in the markets at all.

The new norm?

The reason the reaction passed that quickly is simple: Attacks like this are starting to feel more normal. Markets react only to new news. The fact that terrorists want to attack the civilized, and are occasionally able to do so, is not news. We face this every day.

One of the questions I got in the interview was whether people would be more scared. Possibly, I said, but I doubt it, simply because it is not possible to live in America without being constantly reminded of the threat. Every time you go into an airport, check into an office building, or even simply see a photo of the New York skyline, you are reminded of terrorists. Fear is now built into everyday life here. It’s hard to go a full day without being reminded of terror.

Think about 9/11, think about Boston, think about Fort Hood, think about Chattanooga—all committed by Islamist extremists, as were the attacks in Paris.

A look at the facts

But if you look at the Wikipedia listing of terror attacks here in the U.S., note that extremists are certainly not the only terrorists out there. In fact, over the past five years in the U.S., radicals have committed a fairly small share of such attacks. If you also include mass shootings that are not classified as terrorism, such as those in schools, the proportion becomes even smaller.

This is not politics; it is math. I prefer to make decisions based on facts, not emotions. My point is that terror is becoming more normalized. Markets have processed this and don't react. Societies have not.

Fear versus reality

We have to reconcile fear versus reality, which is one thing the markets are very good at doing. The reality is that radicalized individuals are more visible now than they have ever been before. We must take precautions. We also, however, have to be careful not to overreact and do the wrong thing—and let our enemies win again. Let's try to be as smart in our reactions to world events as we try to be in our investments.

  Subscribe to the Independent Market Observer

Upcoming Appearances

Tune in to Bloomberg Radio's Bloomberg Businessweek on Friday, February 28, at 3:45 P.M. ET to hear Brad talk about the market. Stream the show live at https://www.bloombergradio.com/, listen through SiriusXM 119, or download Bloomberg's app, Bloomberg Radio+.

Tune into Yahoo Finance's The Final Round on Thursday, March 12, between 2:50 and 4:00 P.M. ET to hear Brad talk about the market. Exact interview time will be updated once confirmed. Watch at finance.yahoo.com

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®