Mohamed El-Erian: Use rallies to ‘lighten up on risk’

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Economist Mohamed El-Erian believes recent gains in the market, precipitated by last week’s upside, offer an opportunity to investors to sell some of their riskier holdings.

In an interview with CNBC on Monday, El-Erian noted that there remains a possibility of a fresh downturn that could harm short-term targets. He pointed his remarks towards a potential “policy mistake” and the geopolitical uncertainty around the Russian invasion of Ukraine as key concerns.

When I look at how well the market has done last week, my own inclination is to use the rally to lighten up on risk because I think there’s just too much of a probability of a policy mistake, and we can’t ignore what’s happening to the global economy,” El-Erian told CNBC. 

The rally is an opportunity

The Allianz advisor made his comments before US Federal Reserve Jerome Powell reiterated the Fed’s need to be aggressive as they look to tackle rampant inflation. 

According to the Fed Chair, its likely all “appropriate” steps will be on the table as policymakers monitor the situation.

El-Erian is however warning of a potential miscalculation from the monetary policy perspective, a scenario he thinks would harm growth.

Dramatic change in Fed Chair Powell’s inflation narrative continues given actual/likely high #inflation numbers.
I so wish this had happened months ago. There certainly was enough data.
Being so late, it’s unlikely that the Fed can meet its inflation target without harming growth

— Mohamed A. El-Erian (@elerianm) March 21, 2022

If you have a very high exposure to risk assets, the market has given you an opportunity to lighten up a little bit now here,” the economist offered.

Monday saw US stocks close lower to start the week on a negative, with S&P 500 down 0.04% and the Dow Jones Industrial clipping gains by 0.58%. The Nasdaq Composite also closed lower by 0.40% to see the benchmarks snap a 5-day winning streak established last week.

Last week, Wall Street strung together a 5-day streak of gains to end 6.2% higher for the S&P 500 and +8.4% for Nasdaq.

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