Effect on financial markets impossible to predict

By Matt Krantz, USA TODAY

Investors rattled by the destruction of the nation's financial nerve center worry that another disaster, this one concerning the value of stocks, could await once markets reopen. Skittish investors may sell stocks for cash and bonds in the short term, analysts say. But with no precedent for an attack as devastating as Tuesday's, market strategists and historians are torn on the long-term fallout.

"We're talking about something the stock market has never endured," says Brian Belski, strategist at US Bancorp Piper Jaffray.

Views vary widely about what to expect:

• Pessimistic opinion: The stock market gets crushed and pushes America into recession. The attack is enough to smack an already wobbly stock market and economy into recession, says Sung Won Sohn, chief economist with Wells Fargo. "There's no good time for an attack, but this is coming at a vulnerable time," he says.

  Investors will sell stocks seeking security of cash and government bonds, he says. Corporate managers will scale back spending on investments in things such as technology, he says. But most alarming is the damaging effect this will have on consumers, who will cut back spending, he says.

  Gibbons Burke, editor of MarketHistory.com, says the bombing could be the trigger to nudge stocks into danger. And investors already considering selling now have a reason to get out, says Fane Lozman, chairman of Scanshift.com.

• Moderate opinion: Stocks will fall in the short term, but cool heads will soon prevail. There will be "chaos" in the short term as investors sort out the effect, says John Bollinger, president of Bollinger Capital Management. "But political disaster doesn't necessarily lead to economic disaster," he says. Neither the Gulf War nor the Oklahoma City bombing led to long-term financial disaster, he says.

  Historically, investors don't panic following direct attacks on the USA, says MarketHistory's Burke. The Dow Jones industrial average only fell 2% on average in the first trading day following the six major attacks against U.S. property ranging from the bombing of the USS Maine in the harbor of Havana to Pearl Harbor and the Oklahoma City bombing, Burke says. In fact, after four of the six attacks, the Dow Jones industrial average was up 30 days later, he says.

• Specific opinion: Stocks in industries directly affected will suffer most of the damage. Insurance companies are the most likely victim. The terrorist attacks on the World Trade Center towers will be the most costly man-made catastrophe in U.S. history, says the Insurance Information Institute

  Other sectors that could be directly hurt are tourism and airlines, Sohn says. If panic spreads, housing and financial stocks could also come under pressure.

  Jerry Castellini, president of CastleArk Management in Chicago, says energy and defense stocks including Lockheed Martin and Boeing will benefit.

• Hopeful opinion: Investors are so stunned they won't necessarily rush out of all stocks. Investors won't have a chance to wreak knee-jerk havoc on stocks because the markets are closed through today. "Everyone is stunned, and that may cause a more muted response" when markets reopen, says A.C. Moore, strategist with Dunvegan Associates.

Investors such as Robert Hornak, a 33-year-old in Birmingham, Ala., say they don't plan to sell. "Even out of the Depression, people who held stocks did well for themselves," Hornak says.

But the attack, and the higher oil prices it causes, could put the economy in danger, Moore says. "We're at risk," he says.