The stock market could drop as much as 30% from the record highs reached earlier this year before bottoming out, the chief economic advisor at Allianz, said Monday.
The economist, Mohamed El-Erian, also said on CNBC's "Sqawk Box" that most retail investors should stay on the sidelines for now.
"There will be opportunities, but they’re not now,” El-Erian said.
El-Erian Says Market Has Lost Anchors
El-Erian's remarks came as global markets tumbled amid the ongoing coronavirus outbreak and new concerns about an oil price war. U.S. futures contracts tied to the Dow dropped nearly 5% in off-hours trading Sunday, pointing to a major decline in the index at market open.
The index was down 5.67% at the time of publication at 24,398.58.
“It will be messy because we’ve basically lost all our anchors,” El-Erian said on the CNBC program. “We lost the economic anchor with the coronavirus. We’ve lost the policy anchor with people losing confidence in the Fed’s ability to turn things around."
Over the weekend, El-Erian said, investors lost the market anchor typically provided by OPEC as a Saudi-Russia oil price war sent crude prices down sharply.
El-Erian Says Bottom Could Be 30% Below February High
The market could drop as much as much as 30% from where it was when the Dow hit a record on Feb. 12, El-Erian said.
“This is going to be treacherous for a while," he said. "I would advise most retail investors to stay on the sidelines, not panic."
El-Erian's Reasons for Optimism
Good companies with strong fundamentals "will navigate this," El-Erian said.
"This is not a Great Depression ... this is a nasty price correction in an economic slowdown."
There will be good news once technicals turn because the U.S. economy will have record-low mortgage rates that put money in people's pockets and low energy prices, and that will provide conditions for "quite a pick up in economic activity," El-Erian said.
Advances related to the coronavirus, including a way to slow its spread and the development of a vaccine, could make things better quickly, he said.
Photo by World Economic Forum via Wikipedia.