With the number of coronavirus cases growing, Allianz’s chief economic advisor Mohamed El-Erian told CNBC on Monday that the US stock market may tank as much as 30% from last month’s record high of 29,568.
“This is going to be treacherous for a while. I would advise most retail investors to stay on the sidelines, not panic. There will be opportunities but they’re not now,” El-Erian said on “Squawk Box” as Dow, Nasdaq and S&P 500 Futures plummeted 1,300, 410, and 145 points, respectively. Oil prices moved also sharply lower this morning, tumbling into the $30s, while gold hit a 7-year high.
El-Erian first warned on Feb. 3 against buying market dips of a coronavirus-weakened economy. The former CEO of investment powerhouse Pimco said investors should resist the “inclination to buy the dip” as disruptions to corporate balance sheets caused by the rise of novel coronavirus cases will keep sparking concerns of a prolonged global slowdown. He hasn’t changed his mind in that call since, saying it’s going to be “messy because we’ve basically lost all our anchors.”
El-Erian also stressed that we’ve lost not only the “economic anchor with the coronavirus“, but also “the policy anchor with people losing confidence in the Fed’s ability to turn things around. And over the weekend, we lost a market anchor with OPEC” after Saudi Arabia’s decision to launch an effective oil price war.
El-Erian added that putting that together means a “20%, 30% drop in prices” from the Dow’s Feb. 12 record.
Futures Price Action
As of writing, S&P 500 traded 7% lower at 2,764.21. Dow Jones is 1,884.88 points lower at 23,979.90, its worst day sine 2008. Nasdaq dropped 6.86% at 7,987.44. All major averages are down 19% form record highs. Oil, meanwhile, lost $8.82, or 21.61%, to $32.38 per barrel.