Could it be that a limited bombing campaign in Syria, once it actually starts, could actually be good for the U.S. stock market?
The question itself may sound cold and callous in light of the human tragedy that is the Syrian conflict. But it’s a logical one, given that the U.S. stock market has been unnerved as the world waits to see whether (and how) President Obama will respond to the gauntlet that appears to have been thrown down by Syrian leader Bashar al-Assad’s forces.
Clearly, Obama will rely on strategic and, possibly, humanitarian factors in deciding what to do, but given the degree to which the prospect of yet another military engagement may unnerve investors, it’s interesting to take a look at how the stock market has fared in similar “limited” military engagements in the recent past – and happily, the folks at Birinyi Associates have given us some data on that subject to ponder, stretching all the way back to the Bosnian civil war in 1995.
The S&P 500 and "Limited" Military Engagements:
Two Weeks Prior (%)
One Month After (%)
|8/30/95||0.17||4.19||Operation Deliberate Force - Bosnia|
|12/16/98||-0.79||7.00||Operation Desert Fox - Iraq|
|8/20/98||.018||-6.20||Operation Infinite Reach - Afghanistan and Sudan|
|3/24/99||-1.42||6.96||Operation Allied Force - Serbia|
|3/19/11||-3.18||2.03||Operation Odyssery Dawn - Libya|
|Source: Birinyi Associates, Inc.|
It’s important to note that there were other factors at play that could have influenced stocks in each period, and that simply because markets responded this way in the past doesn’t mean that they’ll do so again. Investors certainly have plenty of other worries these days. But it is intriguing to note that in at least four of the five instances identified by the Birinyi team, the removal of the uncertainty in the two weeks leading up to the short engagements (essentially bombing campaigns involving no ground troops) may have cleared the way for the market to post significant gains in the following month. On average, the S&P 500 was down about 1 percent in the two weeks before the engagements began, but rose an average of 2.79 percent in the month that followed.
That was the case in the wake of the Bosnian intervention of 1995 (a 0.17 percent advance in the two weeks prior became a 4.19 percent gain in the month that followed), the often-forgotten “Desert Fox” operation in Iraq in December 1998 (a 0.79 percent loss in the two weeks before the bombings was followed by a 7 percent gain in the S&P). The bombing campaign against Serbia in March of 1999 (in connection with the Kosovo conflict) started on the heels of a 1.42 percent decline in the S&P 500, but in turn was followed by a 6.96 percent gain, making it the most dramatic turnaround. The limited engagement in Libya in early 2011 began after the S&P 500 saw a two-week decline of 3.18 percent, and was followed by a one-month gain of 2.03 percent.
The only exception to this pattern was a 1998 bombing campaign directed at al-Qaeda in Afghanistan and Sudan in August 1998, when a 0.18 percent advance was followed by a 6.2 percent decline in the S&P 500. In a reminder of how much other factors might have been at play, however, that decline took place in the midst of one of the emerging markets crises that rocked financial markets in the summer of 1998.
Bombing Serbia may not be the right political or strategic decision. But if this data does indeed suggest there is a pattern, it is a reminder that uncertainty always rattles investors more than does a known peril.