Tags: El-Erian | investors | stock market | volatility

El-Erian: Investors in 2016 Will Need a 'Stomach for Volatility'

El-Erian: Investors in 2016 Will Need a 'Stomach for Volatility'
(Dollar Photo Club)

By    |   Wednesday, 06 January 2016 07:37 AM


After Monday’s tumultuous stock trading session, investors should just get used to such volatility for the rest of the year, Newsmax Finance Insider Mohamed El-Erian warns.

Allianz's chief economic adviser told CNBC that traders need a "stomach for volatility."

"This year is going to be all about exploiting volatility on the way up and the way down," he said.

The Dow Jones Industrial Average got off to its worst start to a year since 1932. Investors were reacting to negative manufacturing data from Asia and a sell-off in Chinese stocks. Confidence in the U.S. economy prompted Fed officials to raise interest rates last month for the first time in nearly 10 years, Bloomberg reported.

El-Erian said that Monday's market slide marked a "continuation of last year," driven by concerns about growth and geopolitical issues, CNBC explained.

The S&P 500 Index fell 1.5 percent to 2,012.66 at 4 p.m. in New York, after sliding as much as 2.7 percent as equities pared losses in the final 30 minutes of trading. The Dow Jones Industrial Average lost 276.09 points, or 1.6 percent, to 17,148.94. The Nasdaq Composite Index dropped 2.1 percent. The Chicago Board Options Exchange Volatility Index jumped 14 percent, the most in three weeks. About 8.5 billion shares traded hands on U.S. exchanges, 21 percent above the three-month average.

He also believes the Fed will raise interest rates twice this year, as opposed to a plan for up to four gradual hikes supported by some Fed officials.

Meanwhile, two regional Federal Reserve bank presidents, Loretta Mester of Cleveland and John Williams of San Francisco, dismissed concerns over stumbling stocks on the first trading day of the year and said the U.S. economy’s expansion was on solid ground.

“Underlying fundamentals of the U.S. economy remain very sound,” Mester said Monday in an interview on Bloomberg Television. “There’s going to be volatility in the markets, that’s kind of the nature of financial markets.”

Mester, who votes this year on the policy-setting Federal Open Market Committee, said she expects the U.S. economy to grow by 2.5 percent to 2.75 percent this year. Williams said he has forecast about 2.25 percent growth. Both said the Fed should tighten monetary policy gradually in 2016, provided the economy expands as expected.

Mester said a weakening economy in China had already been built into the outlook for 2016 by Fed officials. “I don’t see that as a significant risk for the forecast,” she said.

Williams, who doesn’t vote on policy again until 2018, also downplayed market turmoil, saying he expected unemployment in the U.S. to fall below 5 percent and inflation to begin moving back toward the Fed’s 2 percent target this year.

(Newsmax wire services contributed to this report).

© 2020 Newsmax Finance. All rights reserved.


   
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After Monday’s tumultuous stock trading session, investors should just get used to such volatility for the rest of the year, Newsmax Finance Insider Mohamed El-Erian warns.
El-Erian, investors, stock market, volatility
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2016-37-06
Wednesday, 06 January 2016 07:37 AM
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