El-Erian foresees more volatility but finds Monday’s rally on medical news encouraging

Economist Mohamed El-Erian said he finds Monday’s rally in stock futures encouraging because the optimism is fueled by positive developments around the coronavirus.  

“I am feeling better,” El-Erian said on CNBC’s “Squawk Box.” “We’re having a bounce on medical issues, not on policy issues, not on technical issues.”  

U.S. stock futures were indicating a strong open Monday: Dow futures pointed to a gain of more than 700 points, up more than 3%. Futures for the S&P 500 and Nasdaq also were pointing to similar percentage gains. 

Stocks finished lower last week, their third weekly decline in four. The Dow finished down 2.7% while S&P 500 lost 2.1%. 

Some positive signs around the progression of the COVID-19 pandemic emerged over the weekend, including the first daily decline in coronavirus-related deaths in New York, the epicenter of the U.S. outbreak. Slowing death rates in Europe also offered hope to investors. 

“It’s about people, fewer people dying, fewer people getting infected,” El-Erian said. “I’ve always said it’s a medical solution that forms a bottom for this market.” 

El-Erian, chief economic advisor at Allianz, said the second reason he feels good about Monday’s bounce is because it shows “the ability of this market to get ahead of what the economists are saying.” 

El-Erian has for weeks been urging investors to approach the coronavirus with caution, pointing to unprecedented levels of uncertainty. Last week, he told CNBC the market could still set new lows.

El-Erian on Monday repeated his belief that more uncertainty lies ahead, saying Monday’s positive moves are “a bright spot in an otherwise still gloomy picture.”  

“I think that we need more than just one spot. I still think that the overall paradigm is going to be like last week — volatile around a downward trend,” he said. 

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