Shares of Bank of America (NYSE:BAC) dropped 6% on Wednesday as investors reacted to political turmoil surrounding President Trump's firing of FBI Director James Comey and some recent revelations about the details of Trump's meetings with the former FBI director.
Most other financial stocks took similar hits.
Since November's election, bank investors have been assuming that Trump and the Republican-controlled Congress would create an environment conducive to higher bank profits. Specifically, Trump's corporate tax proposal would probably save the banks money, his deregulation platform would generally make it easier to conduct business, and his pro-growth economic agenda was widely expected to lead to rising interest rates, which means higher profit margins for banks. In fact, Bank of America is poised to profit more than most from higher interest rates, due to a greater percentage of noninterest-bearing deposits.
If Trump gets mired in a political scandal, losing the faith of his fellow Republicans in Congress and potentially facing a long, drawn-out investigation, it seems less likely that Trump will be able to follow through with his ambitious agenda -- at least in the kind of time frame investors had been expecting.
Today's move was purely due to the political drama in Washington. If things quiet down and the Comey-related headlines go away, the banking sector could easily recover. On the other hand, if the recent news turns into a long investigation, or even impeachment proceedings, there could be a lot more downside for Bank of America and other financial stocks.