Will truce in budget wars aid stocks?

NEW YORK — Government gridlock and political policy uncertainty have arguably been among the biggest impediments to the stock market in the past few years.

But political brinkmanship as a major stock market headwind might finally be abating, thanks to a two-year bipartisan budget deal hammered out by Democrats and Republicans late Tuesday.

While the deal is not perfect, and still requires congressional and White House approval, it could mark a turning point in the political wars that have hounded Wall Street in recent years.

"The deal reduces the potential for fiscal brinkmanship surrounding the budget that has clouded the U.S. (economic) outlook in recent years and led to the short-term federal government shutdown this past October," Michael Gapen, an economist at Barclays, said in a research note.

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The deal will also benefit the economy, as it will reduce the estimated drag from fiscal policy in 2014 roughly in half, to about 0.25% from 0.5%, Gapen said. Less fiscal drag means a "modest" boost to GDP.

More important, it could also put an end to nasty stock market sell-offs caused by policy uncertainty.

In the summer of 2011, the Dow Jones industrial average suffered its last major correction, caused largely by government infighting about raising the debt ceiling.

The Dow also pulled back in late 2012 amid fears that the nation's economy would fall over the "fiscal cliff," as well as in October during the government shutdown.