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relates to Take a Peek on the ECB's 38th Floor as Philip Lane Awaits Role relates to Bond Traders Are About to Get a Big Update on Fed's Portfolio relates to ECB Moves Closer to Global Dovish Shift as Coeure Mulls Loans relates to Emerging Markets Retreat Amid Global Growth Concerns: EM Review relates to Fed Will Probably Change Its Approach to Inflation, Dudley Says relates to Pemex Assistance Plan Fails to Impress Bondholders relates to Hedge Funds See Windfall From Bets on Puerto Rico After Storm relates to Fed’s Clarida Watches a Price Gauge That Just Tied a Record Low relates to Surprise! Refinancing Complex Debt Instruments Is Hard relates to Duterte Signs Bills to Ease Inflation, Boost Central Bank Powers
relates to Take a Peek on the ECB's 38th Floor as Philip Lane Awaits Role relates to Bond Traders Are About to Get a Big Update on Fed's Portfolio relates to ECB Moves Closer to Global Dovish Shift as Coeure Mulls Loans relates to Emerging Markets Retreat Amid Global Growth Concerns: EM Review relates to Fed Will Probably Change Its Approach to Inflation, Dudley Says relates to Pemex Assistance Plan Fails to Impress Bondholders relates to Hedge Funds See Windfall From Bets on Puerto Rico After Storm relates to Fed’s Clarida Watches a Price Gauge That Just Tied a Record Low relates to Surprise! Refinancing Complex Debt Instruments Is Hard
markets

El-Erian Says America First Is the ‘Obvious’ Trade in Stocks

El-Erian Says America First Is the ‘Obvious’ Trade in Stocks

  • Allianz adviser suggests lowering European periphery exposure
  • U.S. stocks to beat global peers, UST-bund spread to widen
Mohamed El-Erian

Mohamed El-Erian

Photographer: Nicky Loh/Bloomberg
Mohamed El-Erian
Photographer: Nicky Loh/Bloomberg

Prepare for the return of the divergence trade, with the U.S. set to outshine the rest of the world.

That’s the market diagnosis from Mohamed El-Erian, chief economic adviser at Allianz SE. In an interview on Bloomberg TV, he said poor political and fiscal management in Europe mean it’s “likely that growth prospects are going to dim further.’’

Mohamed El-Erian explains why forces outside the United States could cause the Federal Reserve to cut interest rates.

(Source: Bloomberg)

In the wake of political turmoil in Italy, violent street protests in France and sluggish growth in Germany, the European Commission recently slashed forecasts for the region’s economic expansion to 1.3 percent this year, down from 1.9 percent projected in November. While U.S. activity is expected to slow from 2018’s pace, the Federal Reserve still projects a solid 2.3 percent increase for gross domestic product.

“Would you bet on a team where your major players are all having issues and they’re not playing anywhere near their potential and there is no teamwork? You wouldn’t,’’ said El-Erian, who is also a columnist for Bloomberg Opinion. “And that’s what we’re seeing in Europe because of the politics.’’

El-Erian is a fan of the New York Jets, so rest assured he knows a thing or two about bad teams.

El-Erian says U.S. stocks will outperform, UST-bund spread widen

Given the outlook, the “obvious relative trade’’ is to go long U.S. stocks versus the rest of the world, El-Erian advised. He also called for the spread between 10-year U.S. Treasuries and German bunds to widen out to as much as 270 to 280 basis points, from the current 255 points.

Within the European fixed-income universe, he suggests paying more for higher quality debt. Staying away from the most at-risk countries is also judicious, he added, saying investors “stretched for yield’’ in lapping up recent issues from the likes of Italy and Greece.

Europe is “a lot more” concerning than China, he concluded.