Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

U.S. equities won't revisit March lows, corporate defaults next trigger: El-Erian

EconomyAug 04, 2020 04:50PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Mohamed El-Erian, Chief Economic Advisor of Allianz and Former Chairman of President Obama's Global Development Council, speaks during the Milken Institute Global Conference in Beverly Hills

By Divya Chowdhury and Aaron Saldanha

(Reuters) - U.S. equities will not revisit the lows hit in March 2020, but the next big correction in stock markets could be triggered by corporate defaults, Mohamed El-Erian, chief economic adviser at Allianz SE (DE:ALVG), said on Tuesday.

"I do not expect U.S. equities to revisit the March lows," El-Erian told the Reuters Global Markets Forum chat room.

"I suspect the next big correction will likely be one triggered by corporate defaults and other capital impairment events that central banks cannot shield against," he said.

The S&P 500 (SPX) index bottomed at an intraday trough of 2,191.86 on March 23 after tumbling from February's all-time high as the spread of coronavirus shut down economies around the world. It has rallied back to within 3% of the record.

El-Erian said he expected the lowest tiers of the capital structure to be most at risk, including "CCC-rated high yield corporate bonds and the like, as well as their equities, also some emerging markets."

Asked about his positioning ahead of the U.S. presidential election on Nov. 3, El-Erian said he had become defensive ahead of the rally from the March lows.

"I have gotten more defensive in my positioning and, as it turns out, prematurely," he said.

GRAPHIC: U.S. Fed balance sheet and government bond yields https://fingfx.thomsonreuters.com/gfx/mkt/nmopalbdrva/MicrosoftTeams-image%20(9).png

The one-time PIMCO chief executive said the entire U.S. yield curve <0#USBMK=> could sink below 1% in nominal terms, if "the U.S. is unable to re-initiate a country-wide process of healthy re-openings during this period of living with COVID-19."

GRAPHIC: Year to date performance of iShares iBoxx Dollar IG Corp Bond ETF & SPDR Bloomberg Barclays (LON:BARC) HY Bond ETF https://fingfx.thomsonreuters.com/gfx/mkt/jznvnkqnrpl/MicrosoftTeams-image%20(10).png

U.S. corporate junk bonds (N:JNK) have broadly provided holders with negative returns this year, despite a wave of central bank liquidity, which has supported corporate investment grade bond (P:LQD) prices, lifting them from their March lows.

El-Erian said it was unlikely the Federal Reserve would take policy rates into negative territory. "Having said that, I did not expect them to be buying high yield bonds."

"The sequence is likely to be stronger forward guidance and more QE (quantitative easing), with the related adoption of a more symmetrical inflation target," El-Erian said, adding the Fed will stay near zero for "a long time!"

U.S. equities won't revisit March lows, corporate defaults next trigger: El-Erian
 

Related Articles

CME Group Earnings, Revenue Beat in Q2
CME Group Earnings, Revenue Beat in Q2 By Investing.com - Jul 28, 2021

Investing.com - CME Group reported on Wednesday second quarter earnings that beat analysts' forecasts and revenue that topped expectations. CME Group announced earnings per share...

ADP Earnings, Revenue Beat in Q4
ADP Earnings, Revenue Beat in Q4 By Investing.com - Jul 28, 2021

Investing.com - ADP reported on Wednesday fourth quarter earnings that beat analysts' forecasts and revenue that topped expectations. ADP announced earnings per share of $1.2 on...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Michael Galassini
RoyHobbs Aug 04, 2020 10:37PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thx Captain Obvious!
eddie glass
eddie glass Aug 04, 2020 5:11PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
im a bear at the moment but even i dont think it will revisit march lows, the fed pumped out trillions which harmed every taxpayer to save this market and pump stonks. who in the heck has said it will revisit march lows? they have pumped many stocks 100%+ since then
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email