London Bombings Fallout on the Market

Like most of you, I'm still trying to keep up on the aftermath of today's London bombings while juggling a heavy load at the office, but I couldn't help noticing that on Slate Daniel Gross comments on what financial markets might make of this trauma (given that about >90% of economics is psychology - especially on the trading floor).

Talking about a market session in the middle of it is like writing the story about a baseball game in the fourth inning. And the scale of the 7/7 attacks is much smaller and in many ways fundamentally different than the 9/11 attacks; trading never stopped on the London exchanges and New York trading opened on schedule. Still, it's worth noting that the early market reaction to the London bombings shows some striking similarities to the reaction to Sept. 11.

Markets have a lot of muscle memory. And when traders and investors react to crises that crop up, they instinctively and perhaps subconsciously fall back on knowledge and experience. Just as generals always fight the last war, traders grappling with a coordinated terrorist attack on a global financial center to a degree are trading the last event. Today, in the markets in London and New York, we're seeing the lessons of the post-9/11 investment fallout being applied in real time.