The re-election of Scott Morrison's coalition government yesterday sparked a sharp rally in financial services stocks, with market valuations of major banks soaring by as much as 9 per cent.Investors had priced hefty discounts into major bank stocks since the end of last year as expectations grew that the Labor Opposition would secure electoral support for its reform platform to abolish negative gearing tax breaks, overhaul mortgage broker pay and tighten lending regulations.However, the surprise election outcome unleashed a wave of buying activity on Monday as institutional investors aggressively rotated away from most other sectors.Demand for major bank stocks was particularly strong, with the turnover recorded for NAB, CBA and Westpac exceeding the 12 month daily average by more than threefold.Westpac was the sector's star performer, closing up A$2.34 or 9.2 per cent to A$27.75, while ANZ and NAB each closed up 8 per cent to $27.86 and $25.81, respectively.Broking analysts moved swiftly in the morning to raise their 12-month share price targets, but most remain cautious about the medium term earnings outlook for the sector, given the difficult trading environment and the likely impact of regulatory changes already implemented by the Morrison Government.In a research report published on Monday, Morgan Stanley analyst Richard Wiles told clients that the election result removed some "tail risks" weighing on bank share prices, but they were not sufficient to shift his negative stance on the sector."It does not change the fundamental outlook for the Australian banks, which face challenging operating conditions and an uncertain regulatory environment," he told clients."We expect some support for major bank share prices in the near-term but believe that trading multiples across the group are not cheap enough to compensate for low growth and falling returns on equity."The main takeaway from Wiles' analysis is that the rally is likely to be short-lived.Wiles noted that price to earnings multiples of ANZ, CBA and Westpac were at or above historical averages ahead of the election, even though the banks' 25-year super cycle had come to an end.On this basis he recommends investors remain underweight on each of the stocks.However, Wiles is a tad more bullish about NAB's prospects, arguing in the report that its simplified business model is poised to deliver superior performance relative to its peers."We see less revenue risk than for peers, given its business mix, franchise performance and a satisfactory volume/margin trade-off," Wiles stated in the report."We think NAB can achieve its guidance of broadly flat expense growth in 2019."Investors are rotating to banks and other high-yield financial services stocks now that Labor's plan to abolish the use of imputation credits for cash refunds will not proceed.Labor also planned to levy a new tax on the nine largest banks that would have raked in $600 million over the next four years.The proceeds from the levy would have been used to compensate victims of recent cases of misconduct.Some other financial services stocks also rallied firmly, particularly mortgage brokers and health insurers that were facing revenue hits under regulatory changes