Clearly, we knew why the markets fell on September 17 when trading resumed, but it might surprise investors that most of the time, major market movements are not accompanies by any news explains why prices change. Since 1885, when Dow Jones averages were first formulated, there have been 126 days when the Dow Jones Industrial Average has changed by 5% or more. Of these, only 30 (or less than 1 in 4) can be identified with a specific world political or economic event, such as war, political change, or governmental policy shift. Also noteworthy, 4 of the largest 5 moves in the stock market over the past century for which there is a clearly identifiable cause have been directly associated with changes in monetary policy.

Of the 10 largest daily market moves, only 2 can be attributed to news. The record 22.6% 1-day fall in the stock market on October 19, 1987, is not associated with any readily identifiable news event. Since 1940, there have been only 4 days of big moves where the cause has been identified: the 7.13% drop on September 17, 2001, when the markets reopened after the terrorist attacks; the 7.18% drop on October 27, 1997, when there was an attack on the Hong Kong dollar; the 6.91% drop on Friday, October 13, 1989; and the 6.54% drop on September 26, 1955, when President Eisenhower suffered a heart attack. The decline in October 1989 has often been attributed to the collapse of the leveraged buyout of United Airlines, although the market was already down substantially before this news was announced late in the day. It is interesting that September 17, 2001, was the first time the market dropped 5% or more during a U.S. involvement in any war during this century and more than double the 3.5% drop that occurred on the day following the attack on Pearl Harbor.

Even when the market moves substantially, there can be sharp disagreement over the cause. On November 15, 1991, when the Dow fell over 120 points, or nearly 4%, Investor’s Business Daily entitled an article about the market ’Dow Plunges 120 in a Scary Stock Sell-off: Biotech, Programs, Expirations and Congress Get the Blame.’ In contrast, the New York writer for the London Financial Times entitled a front-page article ’Wall Street Drops 120 points on Concern at Russian Moves.’ What is interesting is that such news, specifically that the Russian government had suspended oil licenses and taken over the gold supplies, was not mentioned even once in the U.S. article. That one major newspaper can highlight ’reasons’ that another does not even report illustrates the difficulty in finding fundamental explanations for the movements of markets.

Uncertainty and the Market

The market fears uncertainty and events that jar investors from their customary framework for analyzing the world. September 11 serves as a perfect example. Americans were not sure what these terrorist attacks meant for their daily lives. How severe would the drop in air travel be? How big a hit would the approximately $600 billion tourist industry take? These unanswered questions instill anxiety in investors and the market.

When investigating the causes of major market movements, it is sobering to realize that less than one in four can be associated with a news event of major political or economic import. This confirms the unpredictability of the market and difficulty in predicting market moves. Those who sold in panic at the outbreak of World War I missed out on the greatest year in the market. Yet the surge in buying that occurred at the onset of World War II also was misplaced because the government was determined to cap wartime profits. Wars, political campaigns, and even recessions, which seem so all-consuming when they occur, prove to be minor factors against a backdrop of economic growth and political stability that has proved to be the major theme of the past century.

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