El-Erian: 'We're not in an all clear' for stock index buying, but the sell 'everything' moment has passed

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Investors should be buying individual stocks, not indexes because more coronavirus-driven market volatility is coming, economist Mohamed El-Erian said Monday. 

El-Erian, chief economic advisor at Allianz said, he felt the time of “selling everything” passed a few weeks ago but the “all clear” moment is not here yet. It is now a moment for being selective both in what investors buy and sell, he said.  

“If you feel it’s the all clear, go out and buy the index … I don’t think we’re there yet,” El-Erian said on CNBC’s “Squawk Box.” “We’re not in an all clear.”

El-Erian’s comments came after a strong week for stocks that saw the Dow Jones Industrial Average post its best weekly gain since 1938, rising more than 12%. The S&P 500 and Nasdaq posted gains of 10.3% and 9.1%, respectively, for their best weeks since 2009. 

El-Erian, former co-CEO of investment giant Pimco, said investors should be selling companies that face the real prospect of bankruptcies due to the economic shock from the coronavirus.

“We’re going to have bankruptcies, and bankruptcies unfortunately destroy the capital structure completely,” he said. 

But El-Erian said there are other stocks he is “comfortable” buying right now, since all three major U.S. indexes remain more than 20% below their all-time highs in February. 

These companies “have rock-solid balance sheets. They have a ton of cash. They’re cash drain is very limited, some of them are still accumulating cash,” he said. “These are not only going to survive. They’re going to emerge to a landscape that speaks to their strengths.”  

The three major U.S. stock indexes were up as much as about 1% in early trading Monday. 

Early last week, El-Erian said he saw opportunities for investors who could stomach risk

“Those people who entered this defensively and have a massive appetite for volatility, there is starting to be real pockets of value, and they should be looking at that,” he said on “Squawk Box.” 

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