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Pimco’s El-Erian: Markets to Stay Volatile for a Long Time

Tuesday, 19 Jul 2011 08:14 AM

A tug-of-war taking place in equities markets is going to last for a while, which will continue to stir up volatility, says Mohamed El-Erian, CEO and Co-Chief Investment Officer of Pimco, the world's largest bond fund.

On one hand, corporate fundamentals look good, but on the other hand, the macroeconomic outlook doesn't.

"Looking forward, neither dynamic is going away any time soon. Investors should therefore expect continued volatility," El-Erian writes in a CNBC Guest Blog.

"But this is not the major issue facing them today. Rather, it is whether the two dynamics will remain in broad balance over time, as they have so far this year; the alternative being one of the dynamics falling victim to the other, and resulting in a decisive market move."

A deadlock among U.S. political leadership over lifting the government's $14.3 trillion debt ceiling in order to avoid an Aug. 2 default coupled with economic crises in Greece and elsewhere in Europe are creating uncertainty, which can be awful for markets.

MohamedEl-Erian200ap-.jpg
Mohamed El-Erian
(Associated Press photo)
"It is not surprising that such macro uncertainty is detrimental to consumer confidence and to animal spirits," El-Erian writes.
Consumer spending fuels the U.S. economy.

Consumer sentiment dropped in early July to its lowest level since March 2009 on concerns over falling income and rising unemployment, according to a Thomson Reuters/University of Michigan survey.

"We've not seen a fall like this since 2009... which takes us back to the end of the last recession," says Millan Mulraine, Senior U.S. Macro Strategist, TD Securities, New York.

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"There's a bit of an ebb and flow with the debt talks, but I think the markets have priced in what we saw. There are lot of dark clouds right now."

© 2017 Thomson/Reuters. All rights reserved.

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A tug-of-war taking place in equities markets is going to last for a while, which will continue to stir up volatility, says Mohamed El-Erian, CEO and Co-Chief Investment Officer of Pimco, the world's largest bond fund. On one hand, corporate fundamentals look good, but on...
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2011-14-19
 

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