Be cautious of inflation rising again! Morgan Stanley recommends reducing exposure to the "big seven" and "Trump trade" in the US stock market.

Morgan Stanley's wealth management company advises investors to consider reducing exposure to large tech stocks and the recent outperforming "Trump trades" because the company believes these assets have downside risks in the face of rising inflation next year. Lisa Shalett, Chief Investment Officer of Morgan Stanley's wealth management company, said that since the November US election, the S&P 500 index has risen by 5% and has accumulated a 27% increase this year, "due to market excitement over the US government's growth-promoting policies." Including the "Big Seven" such as Tesla, Inc. (TSLA.US) and some so-called "Trump trades" like Bitcoin, have been rising ahead of Trump's return to the White House in January next year. However, she said that stock investors seem to believe that the US economy is "essentially operating in a globalized, anti-inflation world." She stated in a report on Monday, "However, we believe we may be in the midst of a significant regime change, where economic growth is re-inflationary," with two key drivers of anti-inflation, globalization and immigration, fading. The company suggests that investors should consider "eliminating large concentration of exposure to the Big Seven and other recent high-performing 'Trump trades' positions through tax-loss harvesting for some protection." They believe that post-election optimism may normalize, growth will gradually slow to a soft landing, profits will be lower than expected, and on a risk-adjusted basis, bonds will outperform stocks. Shalett said that stock investors and the Federal Reserve are dismissing the acceleration of inflation for the next three months, while stock analysts are lowering profit expectations and economists are halving their interest rate cut forecasts for 2025. She noted, "Policy vibrancy may produce new market leadership in 2025, and stock selection is crucial." Morgan Stanley's wealth management company is bullish on the financial, energy, residential real estate, domestically-focused industrial, and brand consumer goods manufacturing sectors. The report also points out that the healthcare industry is currently oversold.