The big wins in November by Republicans forced Obama to compromise on the Bush Tax cuts extension, a move that has lifted his approval rating in an Apple-like surge from a 52-week low of 41 percent in October to 50 percent yesterday, according to Gallup. If President Obama was a stock, many traders say they would be buying.
"The sentiment toward Washington has definitely changed, but could it have been worse?" asks Brian Kelly of Kanundrum Capital. "Any incremental improvement in the perceived level of business friendliness will be met with buy tickets."
If history is any guide, this is a common place for bottoms in Presidential approval ratings. Both Reagan’s and Clinton’s approval ratings reached a bottom following their first midterms, notes Strategas Research Partners.
"Presidents who lost control of the House or Senate in a midterm election (Eisenhower, Reagan, and Clinton) all went on to be re-elected," wrote Daniel Clifton, policy analyst for Strategas. Clifton points out that increasing income growth has historically been the key factor for a President to keep a bid under his stock.
The surprise to Obama’s tax cut extension package "was the addition of new growth measures, including a payroll tax cut and allowing businesses to expense their capital equipment purchases immediately," notes Clifton. "Obama is trying to purchase insurance for a growing economy ahead of his 2012 re-election bid."
Both sides will continue to talk tough on their base issues, but where they end up actually compromising may be on the very issue that will lift approval ratings for both Obama and Congress the most: the economy.
Just next week, the Republicans will bring a vote to the House to repeal the President’s Healthcare reform bill. However, this will be just a partisan distraction as the Senate Democratic majority has already said they would not pick up this vote.
The real test will come in March, when Congress is set to vote on the debt ceiling, the amount of money the nation can borrow. Many incoming Republicans have hinted at voting not to increase the ceiling in order send a signal on how serious they are about cutting spending. The Democrats point out what a devastating blow this could be to the country’s credit rating and financial stability and Boehner and most Republicans realize that too, policy analysts said. So then this will be a ripe opportunity for a compromise.
"Rumors of a deal to reform Social Security along the lines of the Deficit Commission recommendations" could be a part of such a compromise to ensure the debt ceiling is increased, according to policy newsletter DC Tripwire.
Another economic olive branch on the horizon that the President could extend without causing mutiny amongst his base is a temporary repatriation tax holiday. This would allow companies such as Microsoft and Cisco to bring back to the U.S. more than a trillion in offshore earnings at a lower rate than the current 35 percent.
"In my view, one of the biggest levers that has yet to be pulled is the repatriation of overseas profits," said Kanundrum’s Kelly. "If a tax holiday is combined with incentives to hire it could change the entire economic dynamic."
In the end though, many investors said the best course President Obama can take is just stay out of the way, allowing the economic recovery to continue and for him to take credit for planting the seeds for it during his re-election bid two years from now.
"Obama’s top priority is to keep his job and he’s not going to let any pesky ideology get in the way of that," said Jim Iuorio of TJM Institutional Services. "I expect a more centrist and popular Obama for at least the next two years and possibly the next six."
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John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team.