Pundits can say all they want that Friday's stock market rally is due to the agreement - yet again - among European leaders to stabilize that region's banks, but I believe this is primarily a "sigh of relief" rally among investors that Thursday's Supreme Court decision shows there are still some grown-ups in Washington.
In the past, investors were often happy when there was divided government, with no political party in charge of all the branches of government, because that forced consensus, compromise and incremental change. But we haven't seen much of that in recent years, with both sides demonizing the other and taking "my way or the highway" stands on everything from fiscal to social issues.
That's why the decision by Supreme Court Chief Justice John Roberts to hold his nose and do what was constitutionally right, rather than go with his political preferences, sends such a positive message to investors. Most investors don't want to have to make their investments in a highly politicized economic arena. It is scary and dangerous enough just having to deal with "normal" economic risks and challenges without having to deal with the sort of political brinksmanship that has become the norm in Washington for dealing with just about everything.
Most investors like me (I'm not in the top 1% we all hear about, but I may be in the top 5%, and I have to "eat my own cooking" as an investor, in that my ability to continue to be retired depends on getting decent, consistent investment returns) would much prefer to see reasonable consensus and burden-sharing coming out of Washington, rather than see either side - the right or the left - actually "win" on its favorite issues. What we want to see is our institutions work, our president, Congress and Supreme Court respect each other and show that they can actually pull together long term to solve our problems.
If the equity and debt markets saw signs that Chief Justice Roberts' action yesterday - doing what's right, seeking out compromise rather than confrontation - was about to become a habit among politicians in general, we would see a stock market rally like we haven't seen in years.
Knowing that there would be a positive, healthy political environment in which our leaders - of both parties - could fashion solutions for our various national challenges would excite the investing and entrepreneurial classes - the so-called "job creators" - far more than adjusting taxes and some of the other short-term solutions that the fringe groups are so fixated on. The capital gains to be had from a "national conciliation" rally would dwarf any tax savings from additional and highly divisive tax cuts.
So let's hope Chief Justice Roberts' decision to act like a grown-up is contagious.