Investing.com - The Trump tax cut package may be good for the stock market in the short-term, but it may also accentuate its decline later in the economic cycle.
That's the thinking of Morgan Stanley (NYSE:MS), which outlined its concern in a note to clients.
The problem with tax cuts at this stage of the economic cycle is that they rob policy makers of a fiscal stimulus tool they might need at a later date, which will compound stock market declines.
Morgan Stanley says most of the tax cut package's fiscal stimulus is already priced into stock prices, with the bulk of the benefit seen in higher corporate profits.
That too is a concern because if earnings expectations are too high, it increases the chance that companies will fail to meet them, which will magnify investor disappointment and stock price declines.
In a previous note, Morgan Stanley said rising volatility and declining investor sentiment will make it difficult for stocks to eclipse their January peak.