NEW YORK ( TheStreet) -- Wednesday's stock market action showed no little trepidation among investors following the reelection victory of President Obama, and the nation's largest banks bore the brunt of the pain.
Investors are rightly concerned that the President will be playing a game of brinksmanship has he negotiates a resolution to the "fiscal cliff" with Republicans, who maintained their control over the House of Representatives, while the Democratic Party retained control over the Senate.
The fiscal cliff describes the possible end to the federal income tax cuts enacted while George W. Bush was president and extended as part of President Obama's August 2010 deal with Congress to raise the federal debt ceiling. Along with a reversal of the tax cuts -- including the beloved 15% maximum federal income tax rate on most investment dividend income -- a concurrent cut in federal spending would likely cause the U.S. economy to slip back into recession, according to many economists.
The president has made it clear that even if he approves an extension to most of the tax cuts, he wants higher-income investors to pay income taxes on dividend income at their ordinary rates, and also wants to see an increase in capital gains tax rates for higher-income investors.Investors also cringe at the mountain of change for U.S. companies and for the nation's healthcare system being brought about by the Patient Protection and Affordable Care Act -- also known as Obamacare -- which Mitt Romney had promised to attempt to roll back, in whole or in part, along with the Dodd-Frank Wall Street Reform and Consumer Protection Act, the two massive pieces of legislation that were highpoints for President Obama's first term. The broad indexes all saw declined over 2% on Wednesday, but the banks really took it on the chin, with the KBW Bank Index (I:BKX) dropping 4.5% to close at 48.80, with all 24 index components showing declines of at least 2%. A signature element of Dodd-Frank was the creation of the Consumer Financial Protection Bureau. While not having the opportunity to serve as the new financial industry regulator's director after serving as a special assistant to the president in order to implement the bureau, Elizabeth Warren will have plenty of opportunities to take further shots against the nation's biggest banks, since she is the new U.S. Senator-elect from Massachusetts, having unseated Senator Scott Brown.