El-Erian sees stock market decline reaching 30% from highs and the world going into recession

Investing News

The U.S. stock market will drop as much as 30% from last month’s highs as global economies go into coronavirus-driven recessions, said economist Mohamed El-Erian, who correctly predicted earlier in the week the selling would continue until a bear market was reached.

The former CEO of investment powerhouse Pimco said on CNBC’s “Squawk Box” on Thursday that investors should not expect a quick recovery in stocks when a bottom is finally reached.

El-Erian said, “Hell no,” about so-called V-shaped bounce; Wall Street talk for a quick down and quick up. He said the market chart would look like a “U” or an “L,” suggesting more time spent at the lows before a recovery begins.

When the stock market snaps back, and he believes it eventually will, El-Erian said it would lead the recovery in the economy. He said that global economies will be slower to restart after the shock of the coronavirus.

El-Erian first warned on Feb. 3 that individual investors should “resist our inclination to buy the dip” as coronavirus concerns were just starting take stocks lower. He has not wavered in that advice since.

On Monday, he said the stock market could experience a “20%, 30% drop in prices” from mid-February’s record highs. He said Thursday he believes the market will drop closer to the 30% part of that range.

U.S. stock futures were pointing to about a 1,100-point slide for the Dow Jones Industrial Average at Thursday’s open after President Donald Trump‘s address Wednesday night failed to ease concerns about the possible economic fallout from the worldwide spread of the new coronavirus.

Ahead of Trump’s announcement of a ban on most travelers to the U.S. from Europe for the next 30 days, the Dow plunged over 1,450 points, or nearly 5.9%, closing in a bear market Wednesday afternoon.

If the indicated losses for the S&P 500 and Nasdaq were to hold by the close on Wall Street on Thursday, they would join the Dow in bear market territory, which is defined by a decline of at least 20% from recent 52-week highs.

Products You May Like