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Tags: el erian | stock | dip | buy

'This Is Different': El-Erian Says Don't Buy Coronavirus-Driven Dip

Tuesday, 25 February 2020 09:17 AM EST

Investment guru Mohamed El-Erian said that he would advise resisting the temptation to buy the coronavirus-related dip in the stock market.

Global markets buckled Monday, pushing the S&P 500 down almost 5% from its record close five days ago, the bull market’s biggest interruption in six months. Concern about a possible pandemic drove investors out of risky assets and into bonds and gold.

Disruptions to earnings and the economy from “shock” events such as the coronavirus tend to stick around longer than more fundamental downturns, the Allianz chief economic adviser said.

“I stress, this is different,” El-Erian told CNBC a day after the Dow Jones Industrial Average plunged over 1,000 points or 3.5%, in its worst single-session in more than two years.

Just because buying market dips has worked in the past does not mean it’s going to work this time, CNBC quoted him as saying. “I would continue to resist, as hard as it is, to simply buy the dip,” said El-Erian, also a Newsmax Finance Insider.

“We’re going to have a lot of risk-aversion on the part of economic actors. It’s going to take time,” he said. “Economic sudden stops are hard to restart.”

To be sure, Bloomberg News explained that the S&P 500’s 5% rout has hammered mom-and-pop investors who’ve piled into the market.

"The sell-off stands as the first major test for mom-and-pop investors who, emboldened by a brokerage price-war, have effectively doubled their trades in equities over the last several months. The surge in interest from a group notoriously known for chasing winners has helped fuel a rally in stocks from tech giants to small-caps," Bloomberg explained.

The shares they love, from Tesla Inc. to Plug Power Inc., are plunging now, with a Goldman Sachs Group Inc. basket of retail favorites falling the most in nine months.

“A lot of that money does tend to be hot money,” said Alec Young, managing director of global markets research at FTSE Russell. “It’s very sensitive to near-term losses.”

However, President Donald Trump reassured investors after the market closed Monday.

"The Coronavirus is very much under control in the USA. We are in contact with everyone and all relevant countries. CDC & World Health have been working hard and very smart. Stock Market starting to look very good to me!" he said in a tweet.

To be sure, White House economic adviser Larry Kudlow urged investors to return to the markets with open wallets.

“The coronavirus will not last forever. The US looks well-contained and the economy is fundamentally sound,” the veteran financial guru and former Ronald Reagan adviser told the Washington Post. “If you’re a long term investor, you should seriously consider buying these dips.”

Barron's reported that some investors are making moves due to the volatility.

In an informal survey of clients about the virus, DataTrek Research found that more than a third had already shifted portfolios. The recent volatility may push the other two-thirds to take similar moves—and that could mean more pressure on markets, wrote DataTrek co-founder Nicholas Colas in a note quoted by Barron's.

Meanwhile, the correlation between the 10-year U.S. Treasury yield and the S&P 500 Index sits at a four-year high, and should also draw investor concern, wrote Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, in a note to clients. “We see stock prices as vulnerable, so if interest rates were to back up suddenly, the diversification that bonds usually provide could fail,” she was quoted by Barron's.

Shalett’s recommendation to clients to better prepare their portfolios: Consider lightening up on secular growth stocks that have done well and adding to undervalued cyclical stocks in areas like financials, industrials, energy and commodities.

© 2024 Newsmax Finance. All rights reserved.

Investment guru Mohamed El-Erian said that he would advise resisting the temptation to buy the coronavirus-related dip in the stock market.
el erian, stock, dip, buy
Tuesday, 25 February 2020 09:17 AM
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