There were three stories in the market on Wednesday, but in reality only one really mattered on the day. You see, when reports start hitting the wires that there are multiple gunmen shooting at people in Canada's Parliament building, traders' thoughts turn to one thing and one thing only: terrorism.

From the stock market's perspective, usually such situations are put to bed relatively quickly as a "lone wolf" having a bone to pick with a government, a company, or a school doesn't keep traders' attention long. The event makes the news and scares people. But, again speaking generally, the perpetrator tends to be captured or worse relatively quickly and traders then go on about their day.

The situation in Ottawa started out this way. The headline read that a soldier had been shot at Canada's War Memorial. And while the location of the memorial was in the heart of the nation's government district, the news didn't attract much attention. First, this was in Canada, not Washington, D.C. And second, the cold-hearted business of Wall Street has seen this type of thing before.

But then there was word of a second gunman at another location.

Then there was a third gunman.

Then there were reports that shots had been fired inside Canada's Parliament building.

Armed police officers were seen entering the offices of Canada's prime minister.

Police told people to stay inside and away from windows.

There were videos of people fleeing buildings, parks, and streets with policemen, guns drawn, frantically trying to get folks to safety.

There were pictures of the Parliament doors being blocked from the inside by lawmakers piling up chairs.

There was a report that this was the second attack this week, and that terrorism was suspected in the earlier hit-and-run death of a soldier in Montreal.

The Canadian Parliament building was on lockdown. The White House was not. But NORAD had been scrambled.

Suddenly this wasn't some whack-job trying to make his point at a post office. No, from the look and sound of things this appeared to be a coordinated attack. And details were thin at best.

No one really knew what was happening, no less why.

So naturally, thoughts turned to the potential of another terrorist event. And not surprisingly, stocks began to sell off.

As the day wore on, government officials assured everyone that this was NOT an act of terrorism. However, given that the closing bell was slated to ring at the corner of Broad and Wall in about an hour, traders decided it was best to sell first and ask questions later.

The Playbook

The sad part is that the world has seen this type of thing many, many times before. And perhaps even sadder is the fact that most Wall Street pros know there is a playbook to be followed for such an event.

The first rule traders implement is "panic early or not at all."

Thus, the fast money and their fancy computers tend to sell quickly (hence the selling into the close yesterday). The thinking is one just never knows when the next 9/11 comes out of nowhere. So, stocks tend to "whoosh" lower as fear begins to build.

From there, the market action largely depends on the outcome of the event. In this case, the market was closing and there was no resolution. As such, selling made sense.

However, the playbook tells us that when these situations eventually get resolved, the fear-induced selling tends to be reversed. Remember, whatever the algos take away, can also be given back - in a hurry.

This Is Where The Other Stories Come In

So, if the events in Canada were not terrorist related and/or not part of a larger plot, one would expect to see the stock market recover the -0.5% to -1.5% loss seen in the various indices yesterday - in short order. But, if the market does not recover on the "good news" then the two other stories of the day may come into play.

To Buy Or Not To Buy?

Part of the reason stocks rallied hard this week was the report that the ECB was hatching plans to start buying corporate bonds. This is good news as the ECB would be able to target troubled banks and lend them a bit of a lifeline. Therefore, the threat of another round of rate contagion would seem to be diminished greatly by the ECB's bond-buying plan.

If there is a plan, that is.

However, as is usually the case with anything involving the Eurozone and/or the ECB, officials were quick to grab the microphone and deny the plans to start snatching up corporate bonds. ECB Governing Councilman Luc Coene said Wednesday morning that the ECB had "no concrete proposal" to buy corporate bonds. Coene added that he wasn't even sure such a measure was needed at this time.

The ECB's Ewald Nowotny also threw cold water on the idea of the bank buying corporate bonds but then did point about that such purchases could help "facilitate balance sheet expansion."

In Fedspeak, these comments likely mean that the ECB has indeed discussed the idea but that there is no consensus amongst the group at this stage. However, rest assured that this issue will be followed closely in the coming days and weeks.

Oil Is Falling Again

The other story that is getting a lot of attention at the present time is the decline in oil. Crude futures sank precipitously again on Wednesday, closing just above the all-important $80 mark. Apparently the thinking is that a drop below $80 would be a blatant warning about the state of the global economy.

But then again, another view is that oil dropping below $80 would actually cause additional economic stress. Take your pick, apparently both are supposed to be bad.

So, if you are not glued to your TV or computer screen watching the goings on in Canada, you may want to make a point to keep up with the latest out of the ECB. And then in your spare time, be sure to also look in every once in a while on the state of the oil market. In short, these are the stories of the day and the potential drivers of the market action.

Turning To This Morning

There are three key stories in the early going today. First, there has been no news out of Canada to suggest that yesterday's attack is ongoing or tied to a major terrorist group. While investigations continue, traders are breathing a sigh of relief this morning. Next up, are the Flash PMIs. In China the numbers came in above expectations and perhaps more importantly, did not disappoint. Across the pond, the Eurozone's Composite Flash PMI surprised to the upside. However, While Germany's numbers continued to show signs of economic improvement, France's readings remain weak. And finally there are the earnings reports. Both Caterpillar (NYSE: CAT) and 3M (NYSE: MMM) came in with good reports. And since both companies are seen as harbingers of economic growth, the mood on Wall Street has improved markedly this morning. U.S. futures currently point to a strong open.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
    Japan: -0.37%
    Hong Kong: -0.30%
    Shanghai: -1.06%
    London: -0.45%
    Germany: +0.20%
    France: +0.17%
    Italy: -0.45%
    Spain: -0.29%

Crude Oil Futures: +$0.97 to $81.49

Gold: -$10.40 at $1235.10

Dollar: lower against the yen and euro, higher vs. pound.

10-Year Bond Yield: Currently trading at 2.242%

Stock Indices in U.S. (relative to fair value):
    S&P 500: +18.59
    Dow Jones Industrial Average: +170
    NASDAQ Composite: +38.96

Thought For The Day:

Just for fun, try smiling at everyone you meet today...

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Positions in securities mentioned: None

Wishing you green screens and all the best for a great day,

David D. Moenning
President, Chief Investment Officer
Heritage Capital Research
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