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Equity Markets Treading Water with Downside Risk Ahead: El-Erian

Daily Ticker
Equity Markets Treading Water with Downside Risk Ahead: El-Erian

New jobless claims numbers out Thursday show them falling to a six-year low at 320,000, and the Labor Department also reported the Consumer Price Index coming in at 0.2% - in line with expectations. Walmart (WMT) -- the largest retailer in the country and considered a gauge of the consumer -- also reported earnings… and missed analyst revenue targets.

Related: 3 Signs Walmart's Best Days Are Behind It

And the market response?

Stocks fell by their most since late-June, purportedly on concern the Fed would start scaling back stimulus and on earnings results showing consumer spending remains week.

Related: S&P 500 Headed to 1770 Even If Fed Tapers: S&P’s Gibbs

In the above video, Mohamed El-Erian, CEO and Co-CIO of Pimco, reacts to the market news.

El-Erian says the economic data speaks to an economy that continues to heal but is not taking off.

That said, he estimates the Fed will likely begin to taper in September (he gives it a 70 – 80% chance), but not just for positive reasons having to do with the economy.

“The Fed recognizes it is using an imperfect tool that has collateral damage,” El-Erian tells The Daily Ticker. El-Erian says the Fed will start to slow bond purchases, “not because the economy is in a really strong position, but rather because it’s afraid that [it's continued policies] may cause more harm than good down the road.”

Related: S&P 500 At Record High, Market “Sort of Toppy”: Rosenberg

As for U.S. markets, El-Erian says we’re “treading water because we swam so fast,” but the market is tired ahead of major uncertainty in September. Check out the video to see what risks he’s watching out for and where he sees equity markets headed considering the still-too-be-determined future of the “Fed put.”

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