The downturn in global markets on Tuesday over concerns about Italy’s political power struggle and the possible economic fallout as a result highlights the mistaken assumption that the world was in a phase of synchronized growth, economist Mohamed El-Erian told CNBC on Tuesday.
“The mistake people made is to confuse a coincidence of a pick up in growth around the world with something that had legs,” Allianz’s chief economic advisor said in a “Squawk Box” interview. “We were just in a lucky coincidence.”
“People are now realizing the only economy with real legs to it was the U.S. economy,” said El-Erian, formerly CEO of bond giant Pimco.
In 2017, the U.S. stock market was roaring based on a number of different influences, according to El-Erian. “The U.S. was policy-led, deregulation, tax cuts. Europe [was] just in a natural healing process,” he said, while “developing countries were bouncing back” and China was in for a “soft landing.”
After hitting an all-time high on Jan. 26, the Dow Jones industrial average tanked in early February. The catalyst at the time was a higher-than-expected wage number in January’s jobs report sparking fears of inflation and interest rates rising more aggressively than projected.
Stocks on a closing basis eventually bottomed out on Feb. 8, briefly plunging in and out of 10 percent correction territory. Since then, the Dow has recovered, closing Friday about 7 percent away from its January record.
via CNBC
