Mohamed A. El-Erian , Columnist

Markets Can’t Ignore These Four Crucial Uncertainties

Reacting with false precision, like trying to identify a bottom, only invites more peril.

April 1, 2020 at 4:08 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.”

Paralysis is also not an option. Choose trends, ranges and principles.
Photographer: Johannes Eisele/AFP/Getty Images

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Falsely reassured by large end-of-quarter rebalancing inflows into stock markets, many analysts and market participants still seem to be resisting four significant uncertainties. Until these are incorporated into corporate earnings expectations and asset valuations more fully, the risk of sudden bouts of market volatility and dislocations could spill over into an economy already hard hit by the coronavirus.

Toward the end of the first quarter, with stocks down 20% to 30% in many markets around the world, astute market participants positioned ahead of what they expected would be a heavy inflow into equities because of automatic portfolio rebalancing. They covered their shorts and some went outright long on equities to ride the wave triggered by this rebalancing. That combination contributed to the best week of U.S. stock market performance since the 1930s and led some to declare that the market has bottomed and act accordingly.