December 7, 1941 will certainly be, as then-president Franklin D. Roosevelt eloquently communicated, a day that “will live in infamy” for many Americans as the U.S. Naval Base at Pearl Harbor, Hawaii sustained a calculated attack by the Empire of Japan during World War II. While the effects of Pearl Harbor were wide-ranging, its impact on the capital markets was also notable even 77 years later.
Prior to the attack, the economy was already on the road to recovery following the Great Depression, which would become the worst economic crisis in the history of the nation. However, Roosevelt’s New Deal programs helped to spur employment as well as shift the attitudes of Americans toward the federal government.
However, as the nation was regaining its economic footing, World War II was percolating in the background as Japan joined Nazi Germany and Fascist Italy under the Tripartite Pact to form the “Axis powers.” Opposing the Axis powers were the Allies of World War II, or the United Nations, which the U.S. didn’t fully commit to joining just yet despite offering aid to the nations partaking in the opposition–until Pearl Harbor.
With access to necessary commodities cut off, such as oil, steel and iron as a result of embargoes placed on Japan by Allied nations, as well as the United States, the country was in desperate need of resources. Desperation typically results in desperate measures and as such, Japan dialed up the aggression with an attack on Pearl Harbor–a move that would awaken a sleeping giant.
Pearl Harbor spurred the entrance of the United States into World War II, but here’s what happened in the markets following the attack:
- Following the attack on Sunday morning, the Dow fell by over 3% during Monday’s session–the same day that the U.S. would officially declare war on Japan
- The sell-off in the markets would continue on Tuesday with another 2.8% drop
- The Dow Jones Industrial Average plunged 6.5% in four days through Dec. 10, 1941
- The Dow rebounded after a month by 3.8%, but the sell-off pressure continued for the next 12 months
- The Dow reached its lowest level since 1934 following the attack on Pearl Harbor
Despite the declines in the capital markets, the resilience of Americans shone through and the Dow would eventually climb out of its hole following the Battle of the Coral Sea in 1942, which would eventually lead to a victory by the Allied forces against the Axis powers in 1945.
“We are confident in our devotion to country, in our love of freedom, in our inheritance of strength,” said Roosevelt during December 1941, just four days before Christmas and a couple of weeks following the attack. “But our strength, as the strength of all men everywhere, is of greater avail as God upholds us. (It will be) a day of . . . asking forgiveness for our shortcomings of the past, of consecration to the tasks of the present, of asking God’s help in days to come.”
Related: 3 Economic Challenges George H.W. Bush Overcame During his Presidency
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