Commentary: Are Investors Too Optimistic?

I am often asked, and in fact we regularly discuss on "Bulls & Bears," if the threat of terror is imbedded in the market. Or better stated, is the threat of terror still holding down stock prices?

My sense is that — right or wrong — almost no trader or investor is remotely thinking about terror right now when they make their decisions. The reason for that, I think, is twofold.

One, Americans tend to view world events through regional eyes. In other words, if it doesn’t happen on our shores, it’s not a problem. Terrorists can blow up U.S. naval ships, or bomb U.S. embassies abroad, and those acts have less impact than if a 7-11 in Paramus was found to have a terrorist pipe bomb in the driveway!

Second, after the tragedy of 9/11 the market bottomed within a week, with anyone selling prior to that date having to watch the market make an enormous run almost straight back up.

Combine these two effects and people are conditioned to feel that a) terrorists won’t strike here again, and b) if they do, the market will bounce right back.

All this may be so, but I’ve often felt that many of my cohorts are being a bit too optimistic about future events. As an example, imagine a dirty bomb detonated in the Holland Tunnel. Or bio-weapons unleashed in the Pentagon. If folks in the U.S. experienced anything like those events, you’d quickly see the market fall dramatically, with the realization that terrorists are still around us, they can strike again, and death and destruction might not be so easily contained.

It’s any of these latter scenarios that are always in the back of my mind, with the affect on the market something I’m keenly aware of. Of course, there’s not much to do now except to have a financial action plan ready to go. Just hope you don’t have to use it.

This weekend our Business Block has much more on terror threats and your stocks. Tune in Saturday 10am - noon ET.

Gary B. Smith, "The Chartman," is a contributing editor for and a regular commentator on "Bulls & Bears."

Gary B. Smith joined FOX News Channel in 1999 and is currently a regular commentator on "Bulls & Bears," including his own segment called, "The Chartman."