Morgan Stanley's U.S. chief equity strategist, Adam Parker, has been bullish for several years, but he told CNBC on Wednesday he's now getting more cautious.
While he's not bearish, he said the change in the investing landscape has led to a "big inflection point in my thinking."
Morgan Stanley's bullish thesis was built around the view that earnings growth was low but the price-to-earnings ratio, or multiple, would expand. Now, earnings are expected to grow but the P/E ratio will likely start to contract and begin to offset that earnings growth, Parker explained.
"You have a more active Fed, you have more uncertainty, you have some risks outside the U.S.," he said in an interview with CNBC's "Power Lunch."
"So I think this year is a bit of the tension of higher earnings, lower multiples, and that's a new regime."
Lower ratios are typically associated with companies that have low growth.
With a lot of optimism already baked into stocks, Parker is anticipating the will end the year slightly higher at 2,300.
He specifically likes energy stocks, which Morgan Stanley has upgraded to overweight from market weight. He doesn't think the sector will get very onerous regulation and believes oil services companies will start talking about price increases.
He also likes health care, particularly biotech, which he called "mispriced innovation."
For those looking for a gauge on when to fade the rally, Parker said to look no further than Washington.
While investors have celebrated Donald Trump's presidential victory and the Republicans' control of Congress, Parker believes the GOP sweep may have created a more uncertain and volatile outlook for the economy and corporate earnings.
"If you are looking for that fade gauge … I think any signs of Washington gridlock or maybe things taking a little bit longer would be on that list, because I think right now people think that the Republican sweep means a lot will get done in a hurry, and a lot of that's gotten priced in a hurry."
— CNBC's Hailey Lee contributed to this report.