El-Erian tells investors to 'be careful out there', warns of market stress

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Allianz chief economist Mohamed El-Erian said Monday that long-term investors should be cautious about buying stocks because financial markets are showing signs of stress.

“We started seeing today more market stress, more liquidity stress. Yesterday, it was just the credit market and the inflation market. Today, it got to the Treasury market. So be careful out there is what I tell people,” El-Erian said on CNBC’s “Closing Bell.” 

The U.S. stock market dove again on Wednesday, with the Dow Jones Industrial Average falling 5.86% to finish in a bear market, which means it is more than 20% below its recent highs. However, unlike other days during the recent rocky period for markets, Treasury yields rose as stocks fell.

The yield on the 10-year Treasury, which rises when there is more selling pressure on the bonds, rose 6 basis points to 0.82% on Wednesday. 

Additionally, the Federal Reserve announced Wednesday afternoon that it was expanding its repo operations to $175 billion to ease pressure on overnight borrowing. 

“Clearly, they finally paid attention. They finally are looking the technicals,” El-Erian said of the central bank’s actions.

The economist said that the economy will start to rebound when “we get signals that the virus is contained and immunity goes up,” and that low oil prices and interest rates could allow for a strong recovery.

For stocks, El-Erian said it is likely that the next move for the market will be down.

“The markets will turn much earlier, and I’m afraid the turning point now is more likely to be the technical one, the one that we don’t like — a disorderly move down that establishes, finally, the basis for the bounce back up,” El-Erian said. “That’s a technical one, and the journey there … is a very unsettling journey for most people.” 

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