Land of Confusion: Paris and the Market Impact of Terrorism By: Gabriel PotterMBA, AIFA® 2015.11.18

Late Friday night, Paris erupted in panic, explosions, and gunfire.  The immediate priority is, of course, to help the people in Paris, their friends, and loved ones as they manage this crisis.  Now that a few days have passed, the world has had some time to step back from the emergency footing and figure out what to do next.  While military responses are being conducted and future political actions are being debated, some have wondered about the effects that terrorism will have to the economy and markets. 

At the time of writing, the global markets are mixed, but there isn’t as much of an effect as the news cycle would have you think.  Certainly, the fear factor will create a certain chilling effects on regional tourism, retail, and cultural events.  For example, many large gatherings, like concerts and movie premieres, are being cancelled or moved elsewhere.  France’s response to this crisis could also change the outcome.  For instance, large scale air strikes from France toward ISIS controlled areas have the potential to inflame the volatile region, key to global energy production.  However, the potential reduction of global growth more than offsets the potential loss of supply due to conflict.  In other words, the price of oil is actually dropping despite the additional bombing in Syria.

There’s a broader notion here, beyond Paris.  Terrorist attacks and senseless violent acts have happened in every country in the world.  There will be a time for healing for Paris, as there was for New York after 9/11, for Tokyo after the sarin attack, or London during the troubles.  The economic forces of daily business, employment, consumption, and the exchange of goods and services will continue, unchanged in aggregate.  The short term responses can be colored by current events, but the flow between nations is simply too big to stop and the fundamental forces which drive commerce and free enterprise will continue largely unchanged.  In other words, nations will be forced to adjust how they respond to terrorism and other threats to security, but in the long term, Paris will soldier on as strong as it has ever been.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

More about Gabriel Potter
Sign up for our Newsletter
Sign up for our Newsletter