The terrorist bombings in London's transportation system today caused global markets to drop sharply, although most regained ground later in the day. The FTSE 100 index closed down 82.70 points, at 5,146.90, up from an intraday low of 5,022. The Dow Jones industrial average closed up 31.61 to end the day at 10,302.29; Nasdaq was up 7.01 to close at 2,075.66; and the S&P 500 was up 2.92 and closed at 1,197.86. U.S. market numbers are preliminary.
Money managers used the dip in stock and bond prices as a buying opportunity and expect the long-term impact on markets might be positive, provided the London attacks aren't repeated elsewhere.
Steve Kellner, head of credit portfolios at Prudential Financial, said credit markets had "a very modest reaction," with spreads widening only slightly across the board. Mr. Kellner, who oversees about $60 billion in investment-grade bond investments, said Prudential bond managers used the market volatility today as a buying opportunity. "Securities are not remarkably discounted today, but they are down enough to justify making purchases," he said. "It was better for us that the bombings happened when our markets were closed. By the time the ... money managers got into their offices, the facts were better known and the market reaction was moderated. It's not unusual to see this kind of reaction: A huge move in pre-session trading doesn't usually mean a big drop when the market opens."
Money managers don't expect global markets to be badly affected by today's terrorist activities. "The investment implications of these attacks are unlikely to prove long-lasting or large. Financial markets in recent years have recognized and 'priced-in' the possibility of such events and thus immunized any likely response beyond the initial reactions," said Ernie Ankrim, chief investment strategist at Russell Investment Group.
"The Madrid bombings (in 2004) didn't have much of a long-term impact, although it was rough on the day and for about a week afterwards. It looks like the London bombings may have even less of an impact," said Ray Mills, portfolio manager of the $870 million T. Rowe Price International Growth & Income Fund. "It's obviously a huge human tragedy, but in stark economic terms, there wasn't much of an impact and probably won't be."
Jerome Jacobs, senior market strategist at Putnam Investments, agreed. "Markets are incredibly resistant to a human tragedy," he said. "There was a very bad reaction at first, but most financial markets came back and retraced their steps. It was a classic situation today, with equities down and bonds trading higher when the markets opened, but most of the shock to the system worked its way out fairly early in the day."