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Opinion
Mohamed A. El-Erian

What’s Missing for a Market ‘Melt Up’

Stronger global fundamentals need to underpin elevated asset prices, and the Fed must maintain a tricky policy balance as the U.S. continues to outperform advanced countries.

All aboard?

All aboard?

Photographer: Joe Raedle/Getty Images

It is no surprise that the possibility of a market “melt up” for the rest of 2019 is becoming a more common refrain among investors. After all, the unsettling volatility of the fourth quarter of 2018 is well within the rearview mirror, and the first four months of this year have delivered ample gains with declining volatility. Although there are understandable reasons for this optimism about the future, two uncertainties risk being assumed away in this melt-up scenario, and they don’t relate to the trade and political issues that have persisted for so long and that investors feel comfortable sidelining.

The first four months of 2019 have seen a return of the 2017 realignment that comforts investors a great deal — that is, the combination of high returns, low volatility and favorable correlations.