During and just after 9/11, Nassim Taleb, a Lebanese-born former options trader and quantitative analyst, wrote a book called “Fooled by Randomness,” and then he amended (and named) this tendency in a 2007 book, called “The Black Swan,” referring to the rare (except in Australia) dark coloring of these usually white avian beauties.
Taleb said a Black Swan: (1) is an outlier, often with nothing similar seen in the past, (2) delivers extreme and immediate impact, and then (3) becomes more explainable, but only after the fact.
Forty-years ago tomorrow, on Tuesday morning, January 28, 1986, as tens of millions of Americans were tuned into the dramatic take-off of the Space Shuttle Challenger, the craft exploded just 73 seconds into the flight, killing all seven crew members, including beloved teacher-astronaut, Christa McAuliffe.
This shocker fulfilled all of Taleb’s criteria of a Black Swan Event: (1) It had never happened before. It was the first fatal accident of an American space ship in flight; (2) It had an immediate impact, as President Reagan postponed his State of the Union speech, set for Tuesday night, and (3) it was explained, after the fact, in televised hearings, by physicist Richard Feynman, as a failure of the O-rings in icy conditions.
One reaction that didn’t happen 40 years ago – and seldom happens after other Black Swan events – is any stock market reaction, other than yawning. The rose during the day of the Challenger explosion. It rose for the week and year: It rose 2.6% for the week and 16.8% for the remainder of 1986. The rose 1.2% on the day of the tragedy, +2.7% for the week, and +22.6% for the year 1986.
A Black Swan also flew into Great Britain exactly 50 years previously, as stock markets around the world were closed to honor the funeral of King George V on January 28, 1936. He was succeeded by Edward VIII, who launched a year-long crisis over his relationship with an American divorcee, ending 1936 with abdication in favor of his younger brother, who became George VI and later passed the crown to his daughter Elizabeth, the longest-running and likely most popular Monarch ever, so things worked out just fine there.
The year 1936 was also a bullish year in an otherwise dismal Depression decade, as the Dow rose 25%.
Over the last century, other notable Black Swan Events included the sudden start of World War I after a shocking assassination in the streets of Sarajevo on June 28, 1914, then Japan’s attack on Pearl Harbor on December 7, 1941, the assassination of President John F. Kennedy on November 22, 1963, and September 11, 2001 (9/11).
We also saw presidents die in office in seven-straight election years divided by 20 – i.e., William Henry Harrison (elected in 1840), then Abraham Lincoln (1860), James Garfield (1880), William McKinley (1900), Warren Harding (1920), Franklin Roosevelt (1940) and John Kennedy (1960), so you might say this trend was “predictable.” Two decades later, Ronald Reagan ended this sad streak when John Hinckley’s bullet missed the Gipper’s heart by an inch in March 1981.
After Reagan (and Pope John Paul II, six weeks later) survived assassins’ bullets in 1981, there were three major Black Swan Events in the late 1980s: First, the 1986 Challenger explosion, then the Black Monday 1987 market crash, an event shocking investors more than the general public. Then came the 1989 fall of the Berlin Wall, a Swan-like Event, even though many had predicted the fall of Gorbachev’s USSR.
The Stock Market Ignores Most Black Swan Events
The stock market had a surprising surge the week and year following the death of President Kennedy. The market also recovered quickly after 9/11 in 2001. These Black Swans don’t seem to impact Wall Street, as most traders react to other, mostly financial, news or trends.
Markets also rose during most 20th-century wars, most of which opened with surprise attacks. The sudden outbreaks of World Wars I and II, plus the shocking start of the Korean War and the August 1964 Gulf of Tonkin escalation of the Vietnam War, all resulted in initial declines followed by strong recoveries.
Here is a diagram of the detailed market reactions after Pearl Harbor in late 1941, and after the June 1950 Korean invasion. Those events were separated by a bit of Post-War (Swan-less) Blues in the late 1940s.
In the latest two Black Swan events, we saw: (1) the sudden escalation of the COVID-19 threat in March of 2020, causing a shocking 35% market decline in 35 days, followed by a record-strong recovery in late 2020. Then, we saw: (2) a major market decline after the shocking high-tariff charts unveiled by President Trump and Interior Secretary Lutnick on Liberation Day in April 2025, but the S&P is up 40% since then:
Most of the Top 5 Years in the Dow’s 130-Year History came after major Black Swan events:
The next Black Swan Event remains unpredictable – by definition – but the market’s reaction may be predictable. With or without a quick correction, the market will most likely be much higher a year later.
