During the next-to-last bear market — as stocks wallowed in scandal, loss, and insecurity in the run-up to the Iraq war — there were numerous rumors that Osama bin Laden had been captured and killed. Several had S&P futures forecasting a major rally before humdrum reality prevailed.
So here we are in the thick of a rip-roaring bull market, with stocks up more than double in two years and the Dow up by a third since September 10, 2001. (Okay, so it hasn’t been the greatest decade.)
And how should stocks react to news that the al-Qaeda mastermind was killed in a US commando raid? As of this writing, they’re flashing minus signs.
How’s that for a giddy market that has lost its head?
One thing traders have clearly lost is their recent yen for commodity speculation:
- Silver tumbled as much as 12% overnight, in response to another ratcheting up of trading margins on the Chicago Mercantile Exchange, then got within 3% of break-even (for the day, not its crazy-good year), then headed lower again.
- Grains are getting ripped, despite flooding in parts of the US breadbasket (and drought elsewhere).
Could it be as simple as “sell in May and go away"? Predictably, this has been a common refrain of late.
This is the sort of “actionable advice” dispensed by those for whom the movement of the planet in its orbit is the only apparent trend. It seems particularly silly to sell on that basis into a market that has bought into every dip without fail for two years.
Sure, this could be the time the pattern changes. But betting on that seems like a great way to miss the next 10% to the upside.
The CBOE Options Volatility Index — aka the VIX, aka the fear gauge — is up a full point today, indicating decent demand for protective puts. The appetite for such insurance has recently been fading even faster than Donald Trump’s campaign.
The fact that the VIX can pop 7% on a day like this is not a sign of irrational exuberance.
Perhaps traders are reacting to reports from the camp of anti-American Iraqi cleric (and government coalition partner) Muqtada al-Sadr about Israeli jets supposedly drilling above Iraq for a strike on Iran.
Normally, this sort of stuff could be dismissed as propaganda. But Israel is trying to derail the recent deal between Hamas, which controls the Gaza Strip, and the Fatah faction in control of the West Bank -- a deal that could end the Palestinian divisions that have been so advantageous to the Israelis. It also faces the likelihood that Egypt may soon end its blockade of the Gaza Strip, strengthening Hamas.
Perhaps this might be a good time, at least from the perspective of Israeli hardliners, to shake things up by striking at Iran, a patron of Hamas. Perhaps the US raid on the bin Laden compound gives Israel the cover it needs.
Then again, perhaps it’s time to back away from the silver-trading screen and pop a tranquilizer.
What’s clear from today’s action is that this is a market that takes nothing for granted — and one that, now that the bulk of lucrative quarterly results is in the bag, is looking for reasons why its good fortune might not persist.
There’s a lot to be said for a skittish market like this. You never know what might happen if war doesn’t break out.
As for bin Laden (notions of frontier justice aside), he became yesterday’s news once half the Arab world took to the streets to demand accountability not from Israel or the US, but from its own governments.
Corruption and stagnation in the Middle East and North Africa have always been Al Qaeda’s greatest assets. The people of the region have now channeled their frustrations into a push along the path blazed by Mahatma Gandhi and Martin Luther King, not the dead sheik.
That will eventually prove a much more important victory than the raid on bin Laden’s compound.