Mohamed El-Erian predicts that a wave of corporate bankruptcies as the biggest risk to the stock market’s rally from coronavirus-era lows.
“I think what derails this market isn’t more China-U.S. tension, isn’t more political differences. It would be if we get then large-scale bankruptcies,” the chief economic adviser at Allianz told CNBC.
“Otherwise, you have a very strong technical supporting this marketplace,” the Newsmax Finance Insider and Bloomberg Opinion columnist warned.
With assets of all stripes rallying and the S&P 500 Index approaching fresh records, investors are facing a dilemma: stay in or get out.
Surging U.S. stocks, Treasuries and gold prices have come to the brink of simultaneously notching record highs for the first time in history, while rallies in once beaten-down assets like oil, financial stocks and the euro have accelerated. The S&P 500 is up 50% from its late March lows, Reuters explained.
"We are in the 'bull everything' trade," said Christopher Stanton, chief investment officer at Sunrise Capital Partners. "There are very few losers. Only laggards."
The broad-based gains have presented investors with a conundrum. While many are uneasy owning assets that appear richly valued or trade at record highs, holding too much cash or an outsize allocation to underperforming stocks has hampered portfolio performance during the recent rally.
Another concern is the possibility of a broad reversal where assets that appreciated in tandem sell off simultaneously, leaving investors with few places to shelter.
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