‘We could have another 10% fall, easily,’ El-Erian warns after big sell-off

Wall Street could be headed for correction territory if there is a shift in investor attitude, Allianz’s chief economist Mohamed El-Erian said after the biggest market decline in months. Investors have taken a liquidity approach to the market and buying the dips, thanks to stimulus action from the Federal Reserve. That mindset will be tested in the coming days as market fundamentals come into play, he said in an interview on CNBC.

“That is the tug of war that’s going to play out, and it’s going to show the DNA of investors,” the chief economic advisor said on “Closing Bell” after major indexes recorded their worst sessions since June.

The Nasdaq Composite, which has rallied hard over the weeks, tumbled nearly 5% on Thursday as high-flying tech stocks took a breather. The S&P 500 and Dow Jones also suffered big losses, dropping 3.5% and 2.8%, respectively. If a mindset shift is looming, El-Erian suggests market players should look out below. “We could have another 10% fall, easily … if people start thinking fundamentals,” El-Erian predicted.

“If the mindset changes from technicals to fundamentals then this market has further to go,” he added, “but it remains to be seen whether it will change.” The sell-off came despite a new weekly unemployment number that was better than expected, a sign that the labor market could be improving. About 881,000 claims were submitted last week, which was better than the 950,000 level that economists forecast.

‘We could have another 10% fall, easily,’ El-Erian warns after big sell-off, CNBC, Sep 4