No Life for the Market Following Osama’s Death

May 6th, 2011
by Jonathan Leidy

As the news of Osama bin Laden’s death enveloped the world’s airwaves this past Sunday evening, many were wondering how the stock market might respond. The Japanese market, represented by the Nikkei 225, immediately popped 145 points (~1.5%) following the news, closing above 10,000 for the first time since the March 11th earthquake. However, after a week to digest the news, the US markets have not followed suit.

Bin Laden was no stranger to moving markets. As the mastermind of the 2001 attack on the World Trade Center, he was responsible for the only multi-day shutdown of the New York Stock Exchange since the outbreak of World War I. Upon reopening, the Dow Jones Industrial Average (DJIA) proceeded to shed 1370 points in one week, or the equivalent of $1.74 trillion in today’s dollars. However, it appears that he is not nearly the catalyst in death as he was during his life. Since Sunday’s announcement, the US stock market (S&P 500) has actually been down, closing the week at minus 2.1%.

So why has the market shrugged off the offing of “Public Enemy #1?” Perhaps traders already view the market as fully-priced. Despite an encouraging jobs report today, GDP has been slowing, as the rise of oil and commodity prices has weighed on producers and consumers alike. Or perhaps this “triumph” is simply too stale to foster much excitement.  Of course, that is not what the media reaction would suggest. Since “Geronimo” was officially pronounced “KIA,” there has been nothing but a nonstop stream of snippets, stories, and street parties. Or perhaps still the market is notably blasé because it recognizes that the price tag of apprehending the world’s wiliest terrorist, estimated to be anywhere between $280MM to $1 trillion, is in many ways a Pyrrhic victory.

Yet, all these suggested causes of economic indifference to a bin Laden-less future may be moot. According to a well-known study conducted by notable academics, including Larry Summers of Harvard and the US Treasury fame, markets rarely react to non-economic news. In their 1989 study “What Moves Stock Prices?” roughly 50 events from 1941-1987 were identified as both important and non-economic. Broad-based market returns on the day following each of these events were then recorded. The conclusion? The S&P 500 actually posted a slightly positive return (.38%).

So perhaps it was foolhardy to expect the markets to rise on the fall of bin Laden? Larry Summers would tell you so… and after all, when have his findings ever proven to be suspect?

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