Wait and see. That’s the approach most businesses, as well as their customers, seem to be taking in the wake of the tragic events of Sept. 11.
Nobody knows what the future will bring, particularly in an economy that was already sluggish before the terrorist attacks. People want to know what’s next. They want to know about our timetable for resolving this situation. We’re a nation of people used to operating at warp speed. Will the current crisis be over in a week? A month? A year? When will life get back to normal?
Business executives abhor uncertainty. They must really be going crazy right now. As much of the world settles in for what may very well turn out to be a long and protracted war in the shadows against international terrorism, people and companies are beginning to focus in on the negative costs of that war. That is only natural, and it leads to caution.
What we are not focusing on right now, but which always seems to come through in the end, is the traditional resilience of the American people and the American economy.
In an interesting article posted on the CNN Financial Network Web site (www.cnnfn.com) on Sept. 21, Jason Zweig compared the reaction of the NYSE during past crises in the 20th century. In virtually every case, the initial reaction (first days or weeks) was for the stock market to fall. Within a month, however, the Dow almost always rebounded. The three-month and six-month marks, likewise, were almost always up.
One of the examples he cited was the Cuban Missile Crisis, when the Dow initially fell 9.4 percent. Within a month, however, it had risen 15.1 percent. After three months, it was up 21.3 percent and, after six months, it was up 28.7 percent. For the Gulf War, the last time we went head-to-head with a foe in the Middle East, the market fell 4.3 percent, then went up 17 percent, up 19.8 percent and up 18.7 percent.
Will the same pattern hold true in 2001? Nobody really knows for sure, but the odds are, yes, it probably will. Having been born in the aftermath of World War II, I missed out on Pearl Harbor, but I was around for every crisis since the Korean War and each one, in its own way, was deadly serious, just as the current climate is.
Yet the financial markets, after a brief initial downturn, almost always seem to rebound. Why is that? My guess is that it goes back to businesses’ dislike of uncertainty, and the initial period of a crisis is always full of uncertainty. However, as time passes -- one month, three months, six months -- and businesses adjust to the new realities, uncertainty wears away and is replaced by a new sense of optimism.
So what does my crystal ball say? Companies will hunker down in the fourth quarter, playing it safe while trying to protect profits (something not uncommon in the fourth quarter of any year) and wait to see if the world falls apart.
Then, beginning in the first quarter of 2002 (three months from now), as we see that we’re still here and that life goes on, our natural optimism will return as companies look for opportunities to grow and expand.
Faith in the future -- that’s what America is all about.
Means the article is accessible only to our magazine subscribers.
