No one's sure how bad it will get.
The record one-day loss on the stock market on the first day of trading after the terrorist assault on New York and Washington and the continuing worries have sent market historians scrambling for their archives for clues to what could happen over time.
There were no obvious answers.
A quick and decisive retaliation against the terrorists could spark a significant recovery, they said. Yet the more likely scenario - a long and difficult conflict, like the one predicted by the White House - could further depress consumer confidence and lead to greater damage to the stock market.
The one certainty was that Monday's sell-off, which drove the Dow Jones industrial average down a worst-ever 684.81 points, took no one by surprise. Big geopolitical shocks normally shave about 5 to 7 percent instantly off the Dow, and that's what happened in this instance. The Dow fell about 7.1 percent in spite of appeals to patriotism, the announcement of massive stock buyback programs by major corporations and another half-point interest rate cut by the Federal Reserve. The initial reaction's probably normal," said Charles Geisst, a stock market historian at Manhattan College in New York. Looking ahead, experts searching for historical guidance noted that the Dow Jones industrial average fell 20 percent in the months after the attack on Pearl Harbor. Then the market rallied, thanks to the unprecedented wartime mobilization and news of U.S. military victories in the Pacific and Hitler's failure at Stalingrad, said economic historian Michael Bernstein at the University of California, San Diego.
Yet the war on terrorism may not offer the dramatic, uplifting turning points that stirred the markets during World War II. "There won't be much to report for a while," Bernstein said. "I wouldn't look for a big moment that would turn the market around."
More selling could follow in the next few days. If lots of mutual fund investors - in some ways the backbone of Wall Street - take money out of their funds, that will force fund managers to sell off stocks in waves in order to meet the investors' demands for cash, said Chriss Street of Street Asset Management.
But, said Street, "The real news isn't who's selling now. The real issue is who will be."
Another problem is that while the federal government is poised to spend billions in response to the terrorist attacks - on everything from strengthening the military to rebuilding New York - the expenditures probably won't represent the same level of buildup that lifted the nation out of the Great Depression.
"It's not a general mobilization - this is not the kind of war that's good for the economy," Geisst said. "You're not getting into heavy production, industrial production."
True, many defense stocks have been boosted by the terrorism. Lockheed Martin Corp. was among the big gainers Monday. But in the long run, Geisst and others said, the new war may more closely resemble, in economic terms, the Gulf War. In that conflict, consumer confidence fell amid fears of terrorism, and the economy and stock market both felt the impact. The S&P 500, perhaps the broadest measure of stock activity, fell 14 percent after Iraq invaded Kuwait, which precipitated the Gulf War, said economist Sung Won Sohn of Wells Fargo & Co.
There's little doubt that the pending war will inflict considerable damage on such sectors of the economy as airline travel and big-ticket consumer goods. And the fact that the market and the economy already were soft could make it tougher for investors to regain their footing.
"The underlying economic fundamentals have become weaker," Sohn said. "One would expect lower stock prices." Beyond that, "what will happen to the stock market will depend on consumer confidence, and the key to consumer confidence is how President Bush handles the retaliation," Sohn said. "If it drags on for a long time and there are a lot of casualties, then it could be a negative."
And while most expects don't see much more panic selling in the short term, they cautions that that doesn't mean things will immediately get better, unless there's a dramatic breakthrough on the military front. "The markets are going to be weak for a little while," McCarthy said. "Then we're going to see some sort of a rally, probably when we see some bombs start falling."
Investment analyst Jeff Logsdon, who tracks the entertainment and leisure industries at Gerard Klauer Mattison in Los Angeles, said, "We've got an awfully resilient economy. Over time, as investor confidence returns, investors will find value in companies and that will be the beginning of rebuilding the capital markets."
If the market doesn't recover, the federal government may intervene by lowering interest rates again or taking some other action, Bernstein said, noting President Bush already has begun an about-fact. "Suddenly, all the ideology about 'no government in the markets' has been put on the shelf," he said.