Pimco’s El-Erian says U.S. stock market rally has hit a wall

August 18, 2009 by · Leave a Comment
Filed under: Stock Market News 

El-Erian makes a good point that stock valuations are not in-line with actually performance of the underlining companies.   After reviewing some of the numbers, statistics and earnings that have been posted as of late, it looks more and more likely we will have another major correction in the next couple of months.  I just don’t see the earnings continuing to be robust during a recession that the consumer is really tapped out when you look at their debt levels and stagnant incomes.  2009 is has been the worst year for getting a raise in about two decades.

News (Reuters):

Mohamed El-Erian, the chief executive of top bond fund manager PIMCO, on Tuesday said the rally in U.S. stocks had topped out because valuations have shot up too quickly.

Asked if U.S. stocks have hit a wall, El-Erian told Reuters Television: “I think we have, and I think what you are seeing is a massive tug of war going on.”

World stock markets fell Monday, with the Dow Jones industrial average .DJI declining 2 percent and China’s Shanghai Composite Index .SSEC falling 5.8 percent, shaking off recent optimism amid doubts about the sustainability of a solid economic recovery.

“On the one hand, pushing stocks higher are powerful technicals, the fact that very low yields on the front end have pushed cash out of the money market segment and into the risk assets,” El-Erian said. “But on the other hand, the fundamentals are such that valuations are ahead of fundamentals. What you have seen over the last couple of days is a recognition that fundamentals matter.”

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