‘If you are a long-term investor, I would wait.’
That’s economist and investor Mohamed El-Erian updating his previous blanket call to refrain from the previously tried-and-true strategy of reflexively buying stock-market dips. In remarks in a CNBC interview Monday and on Twitter, the former Pimco chief executive who is now chief economic adviser to Allianz, said last week’s stock market plunge — the largest fall for major indexes since the financial crisis in 2008 — now offered opportunities for “highly tactical” and arbitrage traders.
But long-term investors should continue to sit it out, he told the cable network, because he expects fundamentals to “deteriorate even faster. I think the policies and fundamentals are going to go in favor of bad fundamentals, unfortunately, initially,” he said.
El-Erian on Feb. 2 warned that the spread of the coronavirus would have cascading effects on the global economy, presenting a challenge that central bankers and other policy makers would find difficult to fix with traditional tools like rate cuts and fiscal stimulus. The changing dynamic would threaten the viability of the “buy-the-dip” strategy that had served investors profitably in the aftermath of the 2008-09 recession.
Early last week, El-Erian said investors should “continue to resist” the urge to buy the dip. Stock-market losses accelerated last week, with all three major benchmarks falling into a correction — a loss of more than 10%, but less than 20%, from a recent peak.
Stocks were sharply higher in volatile trade Monday, with the Dow Jones Industrial Average DJIA, +3.05% jumping more than 530 points, or 2.1%, to 25,941, while the S&P 500 SPX, +2.86% advanced 1.9% and the Nasdaq Composite COMP, +2.85% rebounded 2%. The Dow dropped nearly 3,600 points last week, a decline of 12.4%, while the S&P 500 lost 11.5% and the Nasdaq fell 10.5% — the biggest weekly downturns for all three indexes since the week ending Oct. 10, 2008, in the darkest days of the financial crisis.
Meanwhile, El-Erian, on Twitter, said the Monday market action reflected an “interesting dynamic”: