Economist Mohamed El-Erian warned that the stock market hasn’t reached bottom yet amid the coronavirus scare and oil-price war.
“It’s going to be very volatile but around, unfortunately, a downward trend for now,” the chief economic adviser at Allianz said told CNBC.
El-Erian has for weeks warned investors against buying market dips as they’ve been conditioned to do over recent years because it’s worked.
Investors are likely to see more big swings until the number of infections from the new coronavirus decelerate, market watchers say, and they also want a big, coordinated response from governments and central banks.
The former CEO of investment powerhouse Pimco said that Tuesday’s bounce didn’t change his views of the market landscape. “I don’t think we’ve made the lows yet, but it is going to be incredibly choppy.”
El-Erian, also a Newsmax Finance Insider, warned investors against the “economics of fear” as confirmed cases of COVID-19 continued to rise.
“How will you and I react? Are we going to exaggerate the downward trend? Are we going to de-engage from the economy at a faster rate?” El-Erian asked. “If we do, it’s going to be pretty messy.”
Dizzying swings have been relentless in markets the last few weeks. Stocks had a couple days last week where they rose more than 4%, only for the bottom to give out again.
Nonetheless, hope was rising that the big support efforts from global authorities that markets have been waiting for may be on the way, at least in a piecemeal way. Investors are worried about fallout to the global economy from the coronavirus outbreak, which has pushed airlines to cancel flights and prodded Italy to lock down the entire country, the AP reported.
“Markets don’t trade on good or bad, they trade on better or worse,” said Alec Young, managing director of global markets research at FTSE Russell.
“I would expect the authorities to pull out all the stops to reduce uncertainty,” Young said. “This may be their one opportunity to do that.”
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