Mohamed El-Erian: The stock market could still go back down to new coronavirus lows

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The stock market could still touch new lows as uncertainty around the coronavirus pandemic persists, Mohamed El-Erian said Friday. 

“I don’t think we’re forming a bottom yet. I think we’re going down at a slower rate,” the chief economic advisor at Allianz said on CNBC’s “Squawk Box.” “There is a very important distinction there.” 

Calling a specific bottom is difficult task, El-Erian said. But he said he will feel confident the market is beginning to form a bottom when one of two things happen.

“Either we get a really sharp fall or, alternatively, we get good news on the medical side. That good news is starting to happen, but hasn’t reached critical mass,” he argued. 

The S&P 500 recorded its recent low of 2191.86 on March 23, which was about 35% lower than the index’s all-time high in February. The S&P 500’s Thursday close of 2,526.90 is about 15% higher than the March 23 low. 

El-Erian has consistently been warning investors about the uncertainty presented by the coronavirus outbreak.

In early March, the former CEO of investment giant Pimco correctly predicted that selling driven by the coronavirus would remain until a bear market was reached.

A bear market is defined by a decline of at least 20% from recent 52-week highs.

El-Erian continued his calls for caution on Friday, arguing “there is so much we don’t know.”

The uncertainty around the situation makes it likely for investors to make mistakes, El-Erian said. He said investors should ask themselves which mistake they can afford: Being too early or being too late. 

“The average investor, the mistake they can’t afford, is to be wiped out. Because if you’re wiped out in a bankruptcy, it doesn’t come back. Bankruptcies are capital destroying,” he said. 

“For them, I say, ‘Wait a little bit.’ Yes, you may miss the first 5% up, but it’s very hard to call,” he said. “This is a medical issue. This is not a market issue, an economic issue, a financial issue.” 

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