How September 11 Affected the U.S. Stock Market

The New York Stock Exchange (NYSE) and the Nasdaq did not open for trading on Tuesday morning, Sept. 11, 2001 as terrorists attacked the World Trade Center and Pentagon. First, American Airlines Flight 11 crashed into the North Tower of the World Trade Center at 8:46 a.m. and United Airlines Flight 175 hit the South Tower at 9:03 a.m. The towers are just a few blocks from Wall Street. Then later that morning, a passenger jet crashed into the Pentagon, and a fourth hijacked jet bound for Washington, D.C., was brought down by passengers in Shanksville, Pennsylvania.

The attacks heavily damaged or destroyed two of the most recognized symbols of American financial and military power, causing nearly 3,000 deaths and sending tremors throughout the stock market and the economy.

Market Reaction

Anticipating market chaos, panic selling and a disastrous loss of value in the wake of the attacks, the NYSE and the Nasdaq remained closed until Sept. 17, the longest shutdown since the Great Depression. Moreover, many trading, brokerage, and other financial firms had offices in the World Trade Center and were unable to function in the immediate aftermath of the loss of life and collapse of both towers.

On the first day of NYSE trading after Sept. 11, the Dow Jones fell 684 points, a 7.1% decline, setting a record at the time for the biggest loss in the exchange's history for one trading day. (This has since been eclipsed by the market reaction during the global coronavirus pandemic). The close of trading that Friday ended a week that saw the biggest losses in NYSE history. The Dow Jones Average was down more than 14%, the S&P 500 Index plunged 11.6%, and the Nasdaq dropped 16%. An estimated $1.4 trillion in value was lost during this period.

Major stock sell-offs hit the airline and insurance sectors when trading resumed. Hardest hit were American Airlines and United Airlines, whose planes were hijacked for the Sept. 11 terrorist attacks. The immediate impact was significant. Gold prices leapt nearly 6% to $287 per ounce, reflecting the uncertainty and flight to safety of nervous investors. 

Gas and oil prices also shot up as fears emerged that oil imports from the Middle East would be curtailed. Within a week, these prices returned to around their pre-attack levels as no new attacks occurred and crude oil shipments to the U.S. from continued uninterrupted.

Airlines and Insurers Take a Hit

Airline stocks experienced among the worst declines due to the attack. American Airlines (AAL) stock dropped 39% between Sept. 11 to the close on Sept. 17, and United Airlines (UAL) plummeted 42%.

Insurance companies eventually paid $40 billion in claims related to the Sept. 11 attack. Among the biggest losers was Warren Buffett's Berkshire Hathaway. Most insurance companies subsequently dropped terrorist coverage. Most insurers survived the financial fallout from the attack because they held adequate cash reserves to cover these obligations.

Investing in Protection

Some stock sectors, however, experienced major gains after the attacks. Certain technology companies, as well as defense and weapons contractors, saw their shares increase. Many buyers were investors anticipating a boost in government business as the country prepared for the long war on terror. Stock prices also spiked for communications and pharmaceutical firms.

On the nation's options exchanges, including the Chicago Board Options Exchange, the world's largest, put and call volume increased correspondingly. Put options, which allow an investor to profit if a specific stock declines in price, were purchased in large numbers on airline, banking, and insurance shares. Call options, which allow an investor to profit on stocks that go up in price, were purchased on defense and military-related companies. In the short term, many investors who had purchased these options made money.

The Market Remains Vulnerable to a Major Disruption

The Sept. 11 attack shut the stock market for nearly a week and revealed its vulnerability to physical destruction. While the NYSE building wasn’t damaged, many communications links were severed by the fall of the two trade towers. And the reopening of the NYSE was hampered by the Ground Zero recovery operation nearby.

In response, the NYSE and other exchanges made dramatic steps to bolster their defenses against a physical disruption, including moving largely to electronic trading. While this has made the U.S. markets less vulnerable to physical attacks, it's made them much more vulnerable to a major cyberattack.

“As we have digitized our lives, which has generally been a great blessing, we have sown the seeds for even greater destruction in terms of the ability to hack into our systems,” said former Securities and Exchange Commission Chairman Harvey Pitt, who led the agency on Sept. 11, 2001. “That is today’s equivalent of a 9/11 attack. There is a potential ‘black swan’ event every single day."

Federal Reserve Chairman Jerome Powell shares a similar view. In an interview with CBS in April 2021, he said cyberattacks had become the foremost risk to the financial system, greater than the factors that led to the 2008 financial crisis.

The Market and Economy in the Past 22 Years

Over the long term, the U.S. stock market and economy have enjoyed strong growth despite the negative short-term impact of the attack. In the 22 years since Sept. 11, the S&P 500 index has risen nearly four-fold despite periods of steep declines, including the 2007-2008 financial crisis. And the U.S. economy has enjoyed several long expansions during that period amid major disruptions, including the Great Recession from December 2007 to June 2009, and the economic fallout from the COVID-19 pandemic.

But the fallout from Sept. 11 still weighs even today on the U.S. For decades, taxpayers may be paying trillions of dollars in interest costs on debt used to finance the Iraq-Afghanistan wars, weighing on the economy. While the government financed the wars with debt, not taxes, taxpayers already have helped pay nearly $1 trillion in interest costs on trillions of dollars of debt used to finance the two wars, according to the Watson Institute at Brown University. These interest costs are expected to balloon to $2 trillion by 2030 and to $6.5 trillion by 2050.