Terrorist Attacks: When Is the Risk Highest?

Hey, investors. Mark Galasiewski here.

Following Hamas’ October 7 attack, Israeli authorities began calling it Israel’s “911” for its severity and surprise. The comparison is also appropriate from a socio perspective. In fact, Hamas may be repeating Al Qaeda’s experience, from its rise and perhaps to its fall. To understand why Hamas has committed such an extreme act of violence at this period of history, let’s look at the Al Qaeda precedent.

Since 2008, Elliott Wave International has used Pakistan’s Karachi Stock Exchange 100 index as a proxy for the social mood fluctuations influencing the timing and severity of Al Qaeda’s attacks on American targets. That’s because the KSE has been the stock market closest to the Afghanistan-Pakistan region, where Al Qaeda’s leadership was based for most of its history. As you’ll see, when viewed through the lens of the KSE 100, the group’s most lethal attacks on American targets in the run up to 9/11 were stunningly well-timed from a socionomic perspective.

For example, the group made its name internationally when it detonated a 1300 lb (or 600 kg) bomb in the basement of the World Trade Center in New York City in 1993, toward the end of a bear market in the KSE 100. Although the attack failed to achieve its aim of collapsing the North Tower into the South Tower, thereby killing tens of thousands of people, it did kill six people and caused more than 1,000 injuries as well as massive damage to the property. The attack also foreshadowed the larger wave of terrorist attacks that the group would unleash during the secular bear market over the next eight years.

Al Qaeda then ramped up its activities after the 1994 high in the KSE 100. The group executed its second most lethal attack ever on an American target in 1998, toward the lows of the bear market, when it bombed the U.S. embassies in Kenya and Tanzania. But its most lethal attack by far came on September 11, 2001, just a few weeks before the end of the sideways range in the KSC from 1991 to 2001.

We think it’s no random coincidence that Al Qaeda’s most lethal attack on an American target occurred toward the end of the decade-long bear market in Pakistani stocks. That’s because the social mood tends to be bleakest in the final stages of bear markets. Therefore, at such times, we tend to see social conditions worsen severely, with mass protests, mass bankruptcies, infectious disease, epidemics and terrorism, just to name some of the more common social expressions.

Outbreaks of war are also common, and that’s what we’re seeing between Hamas and Israel now. But the same principle applies. The most severe expressions of the social mood tend to occur toward the end of the bear market.

To understand why Hamas launched its most lethal attack on Israel at this juncture in history, you need to understand the long-term wave pattern in the Palestinian Stock Exchange’s Al Quds Index, which is an excellent barometer of the mood in Palestinian society. To see that chart and our analysis of what it means for Israeli-Palestinian relations in coming years, read the special section in the November 2023 issue of Asian-Pacific Financial Forecast or Global Market Perspective.