The U.S. cattle market will drop as much as 30% from last month’s highs as global economies go into coronavirus-driven economic downturns, according to economist Mohamed El-Erian, who correctly predicted earlier in the week the selling would continue until a exhibit market was reached.
The chief economic advisor at Allianz said Thursday that investors should not expect a discerning recovery in stocks when a bottom is finally reached.
“We’re going to come back. We’re going to turn around, but it is effective to be a difficult journey,” El-Erian said on CNBC’s “Squawk Box.”
“Hell no,” he said about so-called V-shaped bounce; Barricade Street talk for a quick down and up. He said the market chart would look like a “U” or an “L,” suggesting more temporarily spent at the lows before a recovery begins.
“We are going into a global recession. We are going to see a spread of economic swift stops,” El-Erian said. “The trouble with economic sudden stops is it’s not easy to restart an economy. You’ve got to get people to reengage. You’ve got to order the restart. The economic damage is going to last.”
But El-Erian said it’s a different story for financial markets, which are “growing to react much faster” than the economy.
“We are putting so much liquidity into these markets that when the unskilful light flashes, and it will flash at some point, we are going to have such a snap back,” he said. “The fiscal markets are going to lead the real economy.”
El-Erian first warned on Feb. 3 that individual investors should “weather our inclination to buy the dip” as coronavirus concerns were just starting take stocks lower. He has not wavered in that advice since.
On Monday, he replied the stock market could experience a “20%, 30% drop in prices” from mid-February’s record highs. He said Thursday he believes the supermarket will drop closer to the 30% part of that range.
U.S. stock futures were pointing to about a 1,100-point coast for the Dow Jones Industrial Average at Thursday’s open after President Donald Trump’s address Wednesday night go wrong to ease concerns about the possible economic fallout from the coronavirus pandemic.
Ahead of Trump’s announcement of a ban on most travelers to the U.S. from Europe for the next 30 days, the Dow risked over 1,450 points, or nearly 5.9%, closing in a bear market Wednesday afternoon.
The S&P 500 and Nasdaq on Thursday strike down more than 9% and joined the Dow in bear market territory, which is defined by a decline of at least 20% from fresh 52-week highs.
The Dow on Thursday lost 2,352 points, or 9.99%, in its worst day since the 1987 “Black Monday” retail crash. The S&P 500 also posted its worst day since 1987.