“We believe the two main negatives affecting the U.S. banking industry today, in our opinion, are the upcoming fiscal cliff, and the low interest rate environment,” Stovall added. “We see taxes going up on higher income individuals, as well as proprietors of successful mid-market businesses, which is a negative for capital formation and spending, and will likely constrain loan growth.”

  • Financial Select Sector SPDR Fund (NYSEArca: XLF)
  • SPDR KBW Regional Banking ETF (NYSEArca: KRE)

Now that the Democratic party has a hold of the executive branch and Senate, the Affordable Care Act, or “Obamacare,” will likely be implemented.

“However we still see some challenges ahead and believe it is possible President Obama may make a few tweaks as part of any budget or fiscal cliff negotiations,” Stovall said. “The main challenges that we see include the creation of state healthcare exchanges, Medicaid expansion, and the medical device tax.”

Many states are slow in placing a healthcare exchange program, with some even not deciding to support it. Medicaid is expected to add 16 million newly insured Americans over the next decade, but could be limited as part of the deficit reduction plan. The medical devices tax has drawn a lot of criticism as some companies argue it will lead to job loss, but Congress is thinking about a repeal.

  • Health Care Select Sector SPDR Fund (NYSEArca: XLV)
  • iShares Nasdaq Biotechnology Index Fund (NYSEArca: IBB)
  • Vanguard Health Care Index Fund (NYSEArca: VHT)

For more information on sector funds, visit our sector ETFs category.

Max Chen contributed to this article.