El Erian stock market prediction

As the Dow Jones Industrial Average closes in on 17000 and the S&P 500 index nears 2000, investors are cheering stronger economic data this spring after winter weather walloped the economy in the first quarter.

The latest data, including manufacturing and employment for the month of May, paint a picture of an economy that is slowly improving. Five years after the economy emerged from the Great Recession, America has finally returned to pre-crisis levels of employment. Meanwhile, many economists forecast gross domestic product will finally return to its historical average of an annual growth rate of 3% this year.

Despite reaching these milestones, the economy is still far from reaching its potential, according to Mohamed El-Erian, chief economic adviser for Allianz and former chief executive of Pacific Investment Management Company, better known as PIMCO. Perhaps most well known for coining the term “the new normal” in 2009, his prediction for sub-3% growth for the past three to five years has held true. In an interview, El-Erian weighed in on his outlook for the economy, Federal Reserve monetary policy, the bond market, his outlook for stocks and where the biggest risks to the global economy loom.

Among his predictions and insights, El-Erian said he thinks Treasury yields have likely bottomed, but that he would scoop up Treasury Inflation Protected Securities. He said U.S. stocks are fairly-to-over valued and that individuals should wait for a better entry point to invest more money in stocks. Edited excerpts from El-Erian’s interview with FOX Business follow.

Jennifer Schonberger: You coined the term the “new normal” back in 2009, calling for sluggish economic growth in the 2% range for three to five years. First-quarter GDP contracted. Most economists think growth bounced back in the second quarter to the tune of around 3%. But even when taken together, GDP in the first half of the year would still clock in at sub 3%. Are we stuck in a secular stagnation?

Mohamed El-Erian

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