As just explained, the death of terrorist leader Osama bin Laden probably raises more questions than it answers. So even though the news might seem good for business, the market is right to treat it with restraint. Although it creates uncertainty about national security, it may provide greater certainty for the 2012 election.
A friend of mine stated it brilliantly in his Facebook status late yesterday:
Did you hear that Obama was re-elected tonight?
Up to now, Obama's reelection wasn't looking all that promising. His approval rating has fallen from the high 60% range in early 2009 to the low 40% range last week, according to Gallup. Anecdotally speaking, many people I know that were big Obama supporters in 2008 had become disillusioned with the President. But acting as commander-in-chief when U.S. forces killed the most wanted terrorist in the world is a game-changer.
It might be a little bit of an exaggeration to say that Obama will definitely win reelection thanks to the death of bin Laden, but it certainly helps a lot. The economy will be the biggest issue in 2012, and the unemployment rate will likely remain uncomfortably high even then. But Republicans will have a hard time criticizing Obama for being too weak on terrorism or national defense, considering that he was in power when bin Laden was killed.
Moreover, there's some possibility that the death of bin Laden could strengthen consumer sentiment. Even though the news has little to do with the economy directly, Americans will suddenly feel better about their country this morning, and that could translate into a mini-bin Laden-death stimulus if their spending ramps up. If that speeds up the economy a tad, then this also helps the President.
To be sure, this week's news changes the political landscape from the market's standpoint. Before, it looked at least fairly plausible that some Republican would be able to unseat Obama in 2012. Now that looks fairly doubtful. Unless the economy actually worsens or utterly stagnates over the next 18 months, then Obama suddenly has a very good shot at remaining in office through 2016.
The question, then, is whether the market will interpret another four years of Obama as good or bad news. There's no secret that some business groups dislike Obama. The Chamber of Commerce has been very vocal about gripes they have with his economic policy. The financial industry also hasn't been too pleased with all the regulation he and his Democratic brethren in Congress have thrown at it. A major small business industry group has also complained about Democratic policies. But some big businesses have embraced Obama. For example, General Electric's CEO heads a White House council on jobs and competitiveness.
Once again, we'll have to wait and see. If Obama's approval ratings soar and consumer sentiment jumps on this week's news, we may get some reaction from the market. That would provide greater clarity on whether it's pleased or disappointed that Obama might be a two-termer after all.