Mohamed A. El-Erian , Columnist

High Stock Prices and Low Bond Yields Can't Last

Geopolitics and economic policy will determine the new balance.

April 19, 2017 at 12:02 PM UTC

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

The markets aren't virtual reality.
Photographer: Pau Barrena/Bloomberg

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Unless you believe the Federal Reserve will ease monetary policy, which I don't, it is getting harder to reconcile what are still historically low bond yields and relatively high stock prices. More consistent and sustainable levels probably lie somewhere in the middle. Exactly where, as well as when and how we would get there, depends primarily on the balance between geopolitical and economic-policy influences.

Stock markets repeatedly have proven extremely resilient in shrugging off both political and geopolitical worries. In doing so, they have relied on deeply anchored market beliefs regarding stable growth, supportive central banks and further liquidity injections. As a result, they view the prospects for stronger corporate earnings and economic growth as compensations for geopolitical fluidity.