Behavioral Finance

North Korea Can't Nuke Stocks

By, 10/11/2006

Fears are rising around the world over the purported testing of a nuclear weapon in North Korea. We're not certain what that might mean geopolitically, particularly in the surrounding territory in Asia. But we do know the event itself was not nearly scary enough to sink stocks.

In the two market days following the news, most global stock markets have actually moved up. Even markets in close geographic proximity such as Singapore and Hong Kong initially fell on the news but already are rebounding sharply.

Catastrophic geopolitical events and acts of terrorism often have a large effect on sentiment, but not on stock markets. Consider:
• After September 11th, 2001 (the largest terrorist attack in modern history) stock markets closed higher than pre-attack levels less than three weeks after the attacks and stayed above that level for the next six months.
• Stocks were above pre-attack levels just three days after the 2004 Madrid train bombings.
• Stocks were up on the day of the London subway bombings.
Capitalism is highly resilient to adversity, and the stock market is an excellent reflection of that resilience. Markets subsume the totality of what is known and give us a clear and accurate signal of the economic ramifications of geopolitical events. Once again, stocks have been undaunted by new geopolitical uncertainty.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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