Equity investors have embraced Donald Trump's return to the White House, but the post-election rally isn't entirely risk-free.

So far, US indexes have hit new highs as investors look ahead to what Trump's promised policies mean for earnings growth. But while market momentum remains firmly upward, Morgan Stanley outlined three risks that could upend it.

First, a significant jump in Treasury bond yields could stir anxiety among equity investors, the bank said.

Trump's election has already sent yields surging, as Wall Street expects his policies to boost inflation, keeping interest rates elevated. As it became clear Trump won last week, the 10-year note jumped as much as 21 basis points to 4.47% on November 6.

So far, this hasn't been enough to discourage stock investors, but Morgan Stanley suggests that further increases could spell trouble for equities. For instance, concern over the government's ballooning deficit could drive higher yields, the bank said.

JPMorgan analysts share this outlook, noting that the stock market rally would face fatigue once bond yields reach near 5% .

Second, strength in the US dollar might mean issues for large-cap stocks.

After the election, the Bloomberg dollar index surged by the most in four years, reaching its highest since November 2023.

As with bond yields, the greenback is surging on the prospect that US interest rates will remain higher for longer under Trump. Meanwhile, foreign currencies fell against the dollar over worries that the president-elect will implement wide-sweeping tariffs on all US trade.

"If dollar strength continues at the current pace into year-end, it could slow down multinationals' EPS growth for 4Q24 and 2025," Morgan Stanley wrote, later adding: "This would likely be felt more in the large cap indices (where mega cap weights tend to have higher foreign sales exposure) than in the average stock which is why the broadening out can continue under the surface even if the dollar proves to be a headwind."

Third, equities keep getting more overpriced.

As this year's bullish investors raced to gain exposure to market themes tied to artificial intelligence, the S&P 500 has increasingly moved away from its fundamentals.

"More specifically, the y/y change in the S&P has rarely been this disconnected from earnings revision breadth," the analysts wrote, adding: "Once again, this is more of a consideration for the major indices than for the average stock but it does suggest that more upside in multiples is likely contingent on the data confirming a reacceleration in growth."