Mohamed A. El-Erian said the largest stock market decline in 11 months may worsen amid persistent U.S. joblessness and economic growth that trails analysts forecasts.
Investors have wrongly priced in an “orderly” withdrawal of stimulus measures, a rebound in bank lending and coordinated government policy to restore growth. That means Wall Street projections for gains in 2010 may prove incorrect and prices will slump, he said.
“Investors may well find that January’s global equity sell-off was just a precursor to a disappointing year for several asset classes. The global financial crisis has undermined growth and job creation; it has clogged many of the pipes that allocate funds to productive uses; and it has rapidly taken public debt and the budget deficit to worrisome levels.”
The Standard & Poor’s 500 Index fell 3.7 percent in January, more than any month since February 2009, after China set higher reserves for lenders and U.S. President Barack Obama proposed curbs on risk taking at banks. The retreat pared the S&P 500’s gain since sinking to a 12-year low in March to 59 percent.
“Judging from market valuations, I sense quite a gap between consensus market expectations and key political and economic realities, especially in the U.S.,” Mohamed A. El-Erian, added.
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