Gauging the Market Response to bin Laden's Death

Osama Bin Laden

The big news of the day, the death of terrorist leader Osama bin Laden, is only indirectly relevant to business. We've got the market's initial reaction though: major indexes are up modestly in early trading. Is a world without bin Laden good or bad for the economy? We'll have to wait and see to know for sure.

Today's news has one definite impact on the market: it introduces uncertainty. A gut reaction might be that the U.S. is safer without the influence of the world's most famous terrorist. After all, terrorism is bad for business. If bin Laden's death causes those looking to terrorize U.S. civilians to reconsider their actions, then that's good news for the market.

But it isn't at all clear that's the result we'll see. The death of bin Laden could spark even more anger on the part of extremists and result in even more daring attacks than before. Unfortunately, many of these terrorists will gladly die for a cause they believe in, so stoking their anger could do more harm than good.

Moreover, bin Laden was not believed to have been serving as a functional leader for most terrorist networks. Instead, the effort had evolved into a number of distinct terrorist cells. So he was more of a figurehead to terrorists, not the one who gives orders or guidance.

Ultimately, the market needs to wait and see how terrorist cells will react. And that's likely why we have the market open modestly up, as Melinda Peer at The Street reports:

The Dow Jones Industrial Average was higher by 50 points, or 0.4%, at 12,860. The S&P 500 was higher by 4 points, or 0.3%, at 1368, and the Nasdaq was ahead by 8 points, or 0.3%, at 2881.

The markets are cautiously optimistic. They're saying: Look, it's great that we don't have bin Laden to worry about anymore. But until we can be sure that his death will provide greater security for the United States and world, we aren't going to chant "U-S-A" in the streets like a bunch of drunk college kids.

A sense of relief must be felt by many employees of the big financial firms located in Manhattan. Most of them were located downtown a decade ago, not far from the towers that bin Laden's operatives destroyed on 9/11. For now, the sense of justice that Wall Street investors and traders feel will remain mostly personal. They know that the market needs some time to digest the news and see whether it actually helps or hinders the stability of the U.S. economy.