Obama announces bin Laden is gone.
May 6, 2011
A minor global rally follows a major geopolitical event.When Osama bin Laden’s death was announced, Wall Street rejoiced – albeit briefly. After Wall Street opened for business Monday, the S&P 500 started out trading 0.4% higher and the Dow was up 0.3% out of the gate. Germany’s DAX was up 0.5% and France’s CAC-40 rose 0.3% higher after their opening bells (with Air France and Lufthansa shares notably climbing). Japan’s Nikkei 225 was up 1.0%; South Korea’s KOSPI was up 0.9%.1,2
However, Monday happened to be a market holiday in China, Singapore, Thailand, Hong Kong and Malaysia, so any effect on their benchmarks was muted. At the closing bell stateside, the U.S. indices ended up pretty much where they had begun the day – Dow, -0.02%; S&P 500, -0.18%; NASDAQ, -0.33%.1,3
Andrew Wilkinson, the senior market analyst at Interactive Brokers in Montreal, was one of many analysts to downplay the effect. “It seems fanciful to accept that global equity markets had been restrained for a decade for fear that Osama bin Laden might pull off another terror attack somewhere around the globe,” he told Toronto’s Globe & Mail.“The world economy has lived through two recessions since 9/11.”1
While there was no real “bin Laden bounce” Monday, what about a long-term effect?
Is there a “peace dividend” ahead? Osama bin Laden’s death may boost morale, but it is not likely to have any real impact on our military spending or our economy. “I don’t think this is a big market factor,” Warren Buffett simply told the Fox Business Network. As University of Central Florida economist Sean Snaith said to the Christian Science Monitor,“It’s not a panacea for the country. Oil prices are not coming down. If you still don't have a job, this isn't going to change things for the better.”4
When the Berlin Wall fell, the U.S. did get a “peace dividend”: our military spending shrunk by $188 billion (in today’s dollars) across 1985-1998. Today, we still have a presence in Afghanistan and Iraq, and Al Qaeda remains to be dismantled. The federal budget request for U.S. military operations in Afghanistan and Pakistan for FY 2012 is $107 billion, only mildly below the current $115 billion allocation. Osama bin Laden’s death provided a lift to many Americans; while the world may feel safer as a result, the stock market continues to take its cue from traditional financial indicators.4
As always, we will continue to update you and watch any of the potential affects this may have on the economy and the markets. Please call us if you have any questions or would like to discuss this further.
Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA
Edward J. Kohlhepp, Jr., CFP®, MBA
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