Markets shrug off terror fears

The foiled threat to bomb transatlantic flights may have caused travel chaos, but markets remained calm. Is this complacency?

The foiled plot to detonate bombs on up to ten aircraft flying between the UK and US rivalled the attack on the World Trade Centre in its intended carnage. Yet the markets' relatively muted reaction was appropriate, says Richard Wachman in The Observer. "Although we cannot be complacent about the potential consequences of a massive terrorism outrage the business world is very different from what it was on the eve of 9/11."

When the airliners smashed into the twin towers, the dotcom bubble was already bursting and US companies were moving into recession. Firms have since become lean, mean machines, and profitability has recovered strongly. In addition, terrorist outrages are already factored into market prices. As John Authers points out in the FT, research shows that following the other major terrorist events this decade, the S&P 500 gained 2%, on average, within a month.

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