How terror attacks affect the markets

The human toll of terrorism is beyond calculation, but unless you're a day trader, the impact on stocks is negligible.

So says Bill Stone, chief investment strategist at PNC Asset Management Group, who used a list of terrorist activity since 1979 from Ned Davis Research in calculating that in the typical case, the negative market impact from terrorist activity fades within 10 days of the incident.

On Tuesday, the Dow Jones Industrial Average halted a seven-session advance amid multiple and deadly attacks in Brussels, but as always, linking the carnage to Wall Street's moves is a difficult, if not impossible, case to make.

Other factors are clearly also in play, "but the fact remains that the impact of terror attacks on the markets has always faded over time," Stone writes in a research note. "In fact, though it seems ghoulish, if history is any guide, we think investors should consider using any downturn based on terror activity to buy risk assets."

After the November attacks in Paris, the Dow Jones industrials average lost 1.2 percent within a day. Five days later, the blue-chip stock index was up 1.6 percent and 10 days later it had advanced 2 percent. Conversely, the Charlie Hebdo attacks 10 months earlier drew little discernible reaction, with the Dow climbing 1.2 percent within a day, and retaining a 1.1 percent gain 10 days later.

A more obvious impact could be seen following the World Trade Center and Pentagon attacks in September 2001, with the Dow dropping 7.1 percent within a day and the decline doubling to 14.3 percent five days later. Still, those losses were erased two months later, with the Dow up 1.7 percent 63 days later and 10.1 percent 126 days after Sept. 11.

Another terrorist event on U.S. soil yielded no noticeable reaction on Wall Street, with the Dow up 0.7 percent a day after the April 19, 1995, Oklahoma City bombing. Five days later the Dow was ahead 2.9 percent, and after 10 days, it had advanced 3.6 percent. Further out, or 126 days later, the index had risen 14.5 percent.

The human toll can be horrific when terrorists attack vulnerable places such as restaurants and hotels -- called "soft targets" by security experts -- but the overarching economic toll is frequently not great, as opposed to attacks on infrastructure, or "hard targets," Stone noted.

While attacks such as those that took place on Sept. 11, 2001, cause greater alarm in the financial markets, "the effect has historically been temporary," the strategist wrote. "Economies and the financial markets do also tend to adjust and become desensitized to terror attacks over time."

Stone, however, cautions investors to brace themselves for stock market volatility if terror attacks continue or larger conflicts begin.