“The World Has Materially Changed”: Why Morgan Stanley Began To Fade The Trump Rally

Morgan Stanley’s Adam Parker has undergone an epistemological catharsis of sorts in the past year: having called 2013-2015 largely accurately, 2016 threw him for a loop, when he entered the year bullish, only to turn bearish, and then to flip again (along with most other sellsiders) shortly after the Trump victory. Then, going into year end, Parker remained steadfastly optimistic, however much of that appears to have now changed, because, as he admits in his latest research outlook issued early this morning, he has turned decidedly more sour on the market (although he still expects the S&P to close the year at 2,300, same as Goldman), as his “view of the world has materially changed in the last couple of months” following the furious market rally, which has little optimistic upside left.
To wit: “What increasingly optimistic news are we going to start embedding in our earnings outlooks post-inauguration that hasn’t already been contemplated? A number of stocks are up a lot for which we don’t expect much incrementally positive news for at least the next couple of earnings seasons. So to us, it is WHEN, not IF we should fade this recent reflation trade.”
And speaking of the WHEN to fade the reflation trade, Parker provides a tenative answer: “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? We are worried that there is an arrogance in telling people that they should be worried, but to stay bullish for now. We are getting more cautious and are trying to be prudent as the market has materially appreciated.”

This post was published at Zero Hedge on Jan 3, 2017.