Queens’ College President Mohamed El-Erian has said that the stock market and the general economy are not primarily concerned about the impact of the Omicron variant but a policy mistake from the Federal Reserve.
Speaking to CNBC, El-Erian stated that if left alone, the markets and economy can navigate the current uncertainty independently, but a wrong policy direction will likely have a negative impact.
He stated that markets can stand on their own since the supporting factors are in order citing aspects like healthy balance sheets.
“The underlying strength of the economy is still considerable. Balance sheets are still healthy, but it’s being eroded. The big risk is not an internal weakening of the economy, It’s a policy mistake, and the markets are worrying more about particularly a monetary policy mistake. Left to its own, the economy can navigate Omicron because it has quite a bit of internal momentum. What it cannot navigate is Omicron plus a policy mistake,” said El-Erian.
Fed’s reaction to Omicron variant
According to El-Erain, it is commendable that the Fed has not reacted to the impact of the new coronavirus strain stating that it’s the right reaction.
He said that any policy changes from the Fed would potentially complicate the inflation situation, acknowledging that it has been higher and more persistent than expected.
On projection for 2022, El-Erain, also an advisor to Allianz and Gramercy, stated that investors should expect changes because the market will rely on historical factors that inspired rallies.
He maintained that in the absence of fiscal support from the Fed, investors should not bet on liquidity injection. El-Erain highlighted that it was easy for investors to put aside other factors impacting the market with the Fed monetary injection because it was a near guarantee several stocks would surge in value.
For investors, El-Erain advised going back to fundamentals and focusing on company names before investing.
Watch the full interview: Markets in 2022 will look very different, investors need to apply fundamentals: Mohamed El-Erian