Tags: El-Erian | stocks | commodities | bond

El-Erian: Stocks May Go the Way of Commodities, Bond Yields

By    |   Monday, 01 December 2014 08:45 PM

While stocks have soared to record highs this year, commodities have slumped and bond yields have slid.

"A big surprise is the extent to which record equity prices have diverged from declining commodity prices and unusually low yields on government bonds," Mohamed El-Erian, chief economic adviser to Allianz and a Moneynews insider, writes in the Financial Times.

And that divergence may not last, he says.

While the S&P 500 has returned 13.2 percent so far this year, the Bloomberg Commodity Index has dropped 8.7 percent, and the 10-year Treasury yield has dipped to 2.24 percent from 3.04 percent last Dec. 31.

The Federal Reserve's massive easing program has allowed stocks to rise even though the economic recovery has been subpar, El-Erian says.

But "at some stage in 2015, market correlations will probably revert to a pattern that is warranted by economic and policy fundamentals," he writes. "What that proves to be is an open question."

If global growth doesn't accelerate substantially next year and economic policy doesn't improve, "equity investors will regret not paying greater attention to the messages coming from their counterparts in the bond and commodity markets," El-Erian says.

Meanwhile, Jeremy Grantham, chief investment strategist of money management firm GMO, says the 5 ½-year-old bull market for stocks has a bit further to go, but then it's going to collapse.

"I am still a believer that the Fed will engineer a fully-fledged bubble (S&P 500 over 2,250) before a very serious decline," he writes in his latest quarterly commentary

The S&P 500 closed Monday at 2,053.44.

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While stocks have soared to record highs this year, commodities have slumped and bond yields have slid. Mohamed El-Erian, chief economic adviser to Allianz and a Moneynews insider, believes that historic correlations will resume sometime next year.
El-Erian, stocks, commodities, bond
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2014-45-01
Monday, 01 December 2014 08:45 PM
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