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Obama Wants More Investors' Money, but How Will He Get It?

Updated with afternoon market action.

NEW YORK ( TheStreet) -- In the aftermath of the election, one thing that investors can count on is that President Obama wants more of their money.

Judging from the initial market reaction -- with the Dow Jones Industrial Average (^DJI) down over 270 points to 12,973.37, the S&P 500 (SPX.X) down nearly 29 points to 1,399.70 and the NASDAQ Composite (^IXIC) down nearly 67 points to 2,945.42 in afternoon trading -- investors are less than thrilled with the result.

Financial names have been hit even harder, with the KBW Bank Index (I:BKX) dropping nearly 4% to 47.78 Wednesday afternoon.

Now that the 2012 presidential election has been decided, the next major political event on the nation's agenda is resolving -- or not resolving -- the "fiscal cliff," which is a combination of tax increases and federal spending cuts mandated under the August 2010 deal between President Obama and Republican members of Congress, that allowed the federal debt ceiling to be raised.

Without further action from our friends in Washington, tax cuts that were passed when George W. Bush was president and extended by President Obama as part of the debt-ceiling deal will expire, which, along with the mandated concurrent federal spending cuts, could send the U.S. economy back into recession, according to many economists.

FBR financial policy analyst Edward Mills on Wednesday wrote that the "status quo" election -- with President Obama staying in office, the Democratic Party retaining control of the Senate and the Republicans retaining control over the House of Representatives - "dramatically increases" the risk of going off the fiscal cliff.

"While it will take several days for the full narrative of the election to develop," Mills said, "we view the result as significantly increasing the volatility related to the negotiations" between the President and Congress, and that "with a slim margin for the President and Republican control of the House, both sides could argue that they have the upper hand in negotiations and will view the election as a validation of their positions."

Credit Suisse global equity strategist Andrew Garthwaite took a much mellower tone when discussing the fiscal cliff on Wednesday, saying that the "Obama victory might make compromise over the fiscal cliff easier than a narrow Republican victory."

Then again, Garthaite summed up the target on investors' back pretty nicely, saying that "Obama proposes to raise the top rate of tax from 15% to 39.6% on dividends (for those earning more than $200K a year) and from 15% to 20% on capital gains (both of these would be raised by a further 3.8% surcharge on investment income under Obamacare), and said that "if implemented in full, we estimate this would take [roughly] 5% off our fair value of the S&P 500 (a third of the US equity market is owned by individual investors who earn more than $200K a year)."
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