Wall Street’s rebound has gotten ahead of itself, Mohamed El-Erian, chief executive of Newport Beach-based bond fund manager Pacific Investment Management Co., said Tuesday.
A rally in stocks, which resumed on Tuesday after a down day Monday, has topped out after valuations rose too quickly, El-Erian told Reuters.
Stocks have hit a wall and “I think what you are seeing is a massive tug of war going on,” he said.
“The fundamentals are such that valuations are ahead of fundamentals,” El-Erian said. “What you have seen over the last couple of days is a recognition that fundamentals matter.”
U.S. and global markets fell Friday and Monday on concerns about the viability of an economic recovery. Trading rebounded in New York Tuesday on hopes for retailers, housing and the global economy.
El-Erian, who along with Co-Chief Investment Officer Bill Gross, oversees $850 billion in assets for Pimco,most bonds, but some stocks, too,said U.S. stocks have been on a “sugar high” as recent earnings have come in better than low expectations.
Most of the profit gains have been driven by layoffs and other cost cutting, he said.
Growth still remains challenged by high unemployment and weak corporate spending, according to El-Erian.
