Market Watch: The Fed and the Promise of a Vaccine Aren't Enough to Protect Investors from a 'Reckoning,' Top Economist Warns

Article by Shawn Langlois in Market Watch

Investors had plenty to be thankful for last week, considering how the stock market behaved in the face of surging COVID-19 cases and some potentially troubling signs on the economic front.

Mohamed El-Erian, president of Queens’ College University of Cambridge and economic adviser to Allianz, isn’t so sure the bull run will last.

“I can see why the market has embraced the better destination and has embraced this improvement in the journey,” he told Yahoo Finance in an interview on Friday. “But we still have quite a bumpy journey left. And I suspect we’re going to see, unfortunately some companies come under a lot of pressure in the next few months.”

He warned, there’s one potential problem those two factors can’t fix: bankruptcies, which he says are on the way. “I tell investors, please be careful,”he said. “Do another granular analysis because as you stretch for more yield, you take on a lot more default and bankruptcy risk. And that is not something that central banks can save you from.”

El-Erian also addressed the decoupling of the bullish run in the stock market from what’s happening in the real world. “The gap between Main Street and Wall Street is very, very large, and it is increasing,” he said.

“And that’s not healthy for society, and it’s not healthy for the markets longer term. You should worry about a reckoning ....

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