Why El-Erian Would 'Wait and See' on Stocks

Economist Mohamed El-Erian considers the stock market fairly valued but wouldn’t go all in now given significant uncertainties in the economy, he suggested on CNBC’s “Squawk Box” on Monday.

“The bond market recognizes and has embraced that there’s a lot of uncertainty and that you’ve got to factor that in. The equity market is talking less uncertainty and I just worry that you don’t want to commit fully to this equity market until you figure out the things that we don’t know,” the chief economic advisor for Allianz said. “I don’t know how they’re going to play out.”

It’s unclear how sticky inflation is and how the Federal Reserve will balance the “trilemma” of reducing inflation, minimizing damage to jobs and maintaining financial stability, El-Erian said.

“It’s unusually uncertain, I want to stress that, that’s why the market is fair here. Given what we know and we don’t know, these levels seem fair,” he said.

“I wouldn’t bet against these markets, I wouldn’t bet in favor of these markets, I would actually just wait and see,” said El-Erian, who is also the Queens’ College president at Cambridge University. “We’re going to have to figure out these three main issues.”

El-Erian said he’s trying to figure out three things in first-quarter earnings reports this week:

1. How advanced tech sector cost-cutting is and how impactful it will be.
2. He cited Coca-Cola’s “fascinating” earnings win Monday, saying: “It shows you that pricing power really matters, especially when you have a strong brand and a big market share.”
3. Insight into the banking crisis. “That’s a really important one to look at,” he said.

Overall, “it’s a very varied picture but one that reflects the uncertainty that’s out there,” the economist said.

El-Erian said he was interested in whether banks have stabilized deposits and what’s happening to funding costs and loan loss provisions.