El-Erian: Stocks Are 'Fairly Priced' for 3 Major Unknowns

What You Need to Know

Despite uncertainty around the Fed and the debt ceiling, good things are happening in the economy, Mohamed El-Erian says.
Tech stocks have helped anchor the S&P 500, he notes.
However, El-Erian suggested that the U.S. risks lasting damage to its global economic dominance from the potential for default.

The S&P 500 is fairly priced given three major unknowns in the U.S. economy — the debt ceiling negotiations, what’s happening to credit availability and uncertainty over whether the Federal Reserve will hike, pause or skip raising interest rates next month — according to economist Mohamed El-Erian.

“We are fairly priced for what we don’t know, and we just need to figure out when are we going to find out, including the Fed. The Fed is going to play a very critical role here,” El-Erian, chief economic advisor for Allianz, said Tuesday on CNBC’s “Squawk Box.”

The S&P has been anchored by “all-weather names,” tech stocks in particular, that are seen as benefiting from the artificial intelligence frenzy and as able to generate revenues “almost regardless of what’s happening in the world economy,” he said. In the meantime, he added, people are waiting to see what happens.

“This is what I call an unstable equilibrium,” he said. “It’s going to go one way or the other; hopefully the S&P will go higher because these things are going to resolve to the positive side, but it is uncertain.” 

Despite the unknowns, many good things are happening in the economy, warranting the “fairly priced” view, El-Erian, also president of Queens’ College at the University of Cambridge, explained.

“The labor market remains strong, [there are] a lot of entrepreneurial activities going on, there is reason to be positive about productivity gains,” he said. “So if we can just stop shooting ourselves in the foot, there is a runway for a bumpy journey to a better destination.”