Impact of terrorism on markets

Traders on the floor of the New York Stock Exchange.
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The U.S. stock market, the U.S. dollar and defense stocks traded higher Monday morning in the wake of the devastating Paris attacks by ISIS, following the historical trend to a T after terror events.

It's a necessary reality for investors on Wall Street: They need to react to these tragic events or they will be doing a disservice to their clients.

Tobias Levkovich of Citigroup sent a note to clients breaking down the historic market reactions to foreign terror attacks, stating at the top of the report:

"While putting worries about stock price levels in any discussion when still grieving the incomprehensible losses seems callous and devoid of sympathy, financial markets are set to open and one needs being professional while simultaneously being outraged by the taking of lives of so many innocents."

"In the past, the U.S. stock market has rebounded rather quickly from geopolitical events that have occurred outside America, including acts of terrorism," Levkovich wrote in the report.

He added, "In a nutshell, we would not expect much effect on the markets. Underlying economic factors will be far more impactful for stock prices, as earnings and central bank policy will dominate most discussions in the next few weeks."

While the effect on the overall market may be muted, these events and the subsequent response to them from nations and individuals will be a game changer for many specific industries and asset classes...