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Wall Street a lousy judge of Supreme Court rulings

Wall Street has proven itself a lousy judge of US Supreme Court rulings. Big decisions on issues like the Affordable Care Act, known as Obamacare, typically roil the stocks of perceived winners and losers. Yet fragmented opinions, obscure language and arcane topics can sometimes make distinguishing between the two surprisingly tough.

It's often enough to look at the bottom-line verdict. When the justices ruled last year that streaming startup Aereo violated broadcasters' copyrights, for example, the victory for TV networks was clear. Shares of CBS and Twenty-First Century Fox together added more than $4 billion in value within two days of the decision, according to a new study by a Chicago Kent law school professor and others.
 
Many decisions are more confusing. The court in 2013 struck down Myriad Genetics' patent on human genes linked with breast and ovarian cancer, but upheld the Utah-based company's rights to man-made versions. It took investors two days to figure out that the case wasn't a big win for Myriad. The stock rose at first before it ended up losing 20 per cent from its undisturbed price before the decision, according to the study.

The high court's 2012 Obamacare ruling initially rattled the market, in part because Fox News and CNN incorrectly reported that the provision requiring individuals to buy health insurance had been squelched, bad news for hospital companies. The sharply divided court had actually upheld the requirement but on unexpected grounds, and hospital stocks recovered.

It can sometimes take years to appreciate an opinion's impact. Decades ago, a decision saying employees had to be paid for time spent donning protective clothing was considered a minor setback for a battery manufacturer. Yet, the opinion's lurid description of the dangers facing plant workers later prompted costly class-action suits against the entire industry. And, attorneys are still debating the effect of last year's ruling that Halliburton and other companies can block securities-fraud class actions by showing a corporate lie didn't affect share prices.

A century ago, a group of investors profited from Supreme Court rulings by persuading a court clerk, Ashton Embry, to feed them advance information. Since insider trading became a crime, that's no longer an option. The smarter approach may be to read the entire decision, or consult a lawyer, before wagering on a case's outcome.