U.S. stocks have rallied since the election, but it's time for investors to start thinking about getting out, possibly timed for President-elect Donald Trump's inauguration, Morgan Stanley said. "We are worried that there is arrogance in telling people that they should be worried, but to stay bullish for now," Morgan Stanley said in a note dated Tuesday. "Part of us thinks we should just sell the inauguration. After all, what incrementally positive and exciting outcomes could be produced in the first few weeks after that?" The U.S. banking giant's research arm noted that it had remained optimistic on U.S. equities for several years, even as it expected low earnings growth and some valuation-multiple expansion. But now, it expects "material" earnings growth and multiple contraction.

The rally since Trump's surprise win has been sizeable. has gained around 9 percent, to a hair's breadth from the 20,000 mark. The S&P 500 is up around 6 percent, tapping record highs. "To us, it is WHEN, not IF we should fade this recent reflation trade," it said. Morgan Stanley set its base-case target for the S&P 500 at 2300 at end-2017, marking 16.2 times its 2018 earnings forecast, compared with Tuesday's close at 2257.83. The bank said pointed to a lack of policy visibility ahead for its middling view. "We can't help but think that the Republican sweep has created a more uncertain and volatile outlook for the economy and corporate earnings growth," it said, citing risks from a more hawkish Federal Reserve, China's economic slowdown, a much stronger dollar and European political uncertainty. Analysts have broadly cited an unprecedented level of policy uncertainty heading into a Trump administration, not simply on what campaign promises would actually be pursued and which will prove to be merely aggressive rhetoric, but also what could pass through Congress.

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Trump's rhetoric on the campaign trail included promises of tax cuts for individuals and companies as well as substantial infrastructure projects, which appeared set to boost the government's deficit spending. Morgan Stanley said there was clearly a lot of earnings uncertainty ahead, but it still forecast that the S&P 500 earnings would be about 18 percent higher in 2018 than in 2016. But it noted that the biggest driver of that increase – more than 50 percent of it -- would come from Trump's promised corporate tax cut to 20 percent from 35 percent. Another 30 percent of the earnings rise over the next two years would likely come from fiscal stimulus and nearly 27 percent from acceleration in share buybacks, it added. The figures add up to more than 100 percent as other factors, such as and higher interest-rate costs, will hurt earnings. "Any tax-related gridlock will be bad for markets," it said in the note. Additionally, Morgan Stanley noted a risk that companies could "compete away" any tax benefits by passing the benefits to consumers, such as by lowering prices, rather than to shareholders. Based on its expectation that the time to fade the U.S. stock rally was nearing, Morgan Stanley changed its sector recommendations for its portfolio.

