Investors not as quick to push the panic button

NEW YORK

In the first year after the Sept. 11, 2001, terror attacks, the mere hint of another assault sent stocks tumbling.

After a second year, investors aren't as quick to hit the sell button.

When news about terrorism breaks, "they wait to see what they should do, and if there is anything that warrants selling." said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research in Cincinnati.

Concern over terrorism has evolved, becoming less central to decisions driving trading on Wall Street. Investors appear to have adjusted to the idea that attacks may happen within U.S. borders and factoring that risk into purchases of stocks.

"That is part of the world we live in now. It is going to be part of our lives going forward," said Michael Murphy, head trader at Wachovia Securities in Baltimore.

U.S. financial markets are showing more resilience to potential terror news, reacting less -- if at all -- when the government issues new alerts about threatened attacks.

A good example occurred on July 23, when a councilman was shot and killed at New York City Hall, just blocks from Wall Street. Even before it was clear that the shooter was not a terrorist, stocks held their gains and finished the day higher.

There is no telling what another major attack would actually do to the markets. And a look back to two years ago, when the attacks toppled the World Trade Center towers and killed nearly 3,000 people, shows how damaging fear and uncertainty can be on stocks.

When trading resumed six days after the Sept. 11, 2001, attacks, investors rushed to sell stocks in the busiest trading day ever at the New York Stock Exchange. The Dow Jones industrial average slid 684.81, or 7.1 percent, to 8,920.70. The Nasdaq composite index dropped 6.8 percent, and the Standard & Poor's fell 4.9 percent.

Arthur Lewis didn't unload stocks that day, but within a few weeks he'd sold his entire $55,000 stock portfolio, laden with such blue chip names as General Motors Corp. and Merck & Co. Inc.

"I wasn't panicky ... but I knew everyone else was," said Lewis, a management consultant who lives in suburban Cleveland. "I had no choice but to get out."

In the past year, Lewis has gotten back into the stock market and now has half his portfolio in stocks and half in cash. If the now-rebounding economy continues to recover, Lewis said he will increase his exposure to equities.

"People are more used to the threat and the fact that we live in a new world," he said. "We are not isolated from the ills of the world anymore."

In that first year after the attacks, it wasn't just the attack that put investors on edge. There were letters sent through the U.S. mail containing poisonous anthrax. False alarms about bombings and breaches in airport security kept the nation nervous.

The string of corporate scandals that started with the collapse of Enron in 2001 added to the market's weakness. But as the second anniversary of the attacks approaches, the market is in a strong upswing.

"Unlike last year at this time, when the market was going through a very rough stretch and emotions were much more fresh, there is a lot of good to focus on," said Brian Pears, head equity trader at Victory Capital Management in Cleveland. "Earnings are getting better and stocks are up, and have been up for a long time."

"No one will ever ignore 9-11," Pears said. But "the threat of terrorism is something we will have to live with for the rest of our lives."