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Four Things That Could Pop the ‘Rational Bubble’ in Equities: Mohamed El-Erian



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There’s been a lot of hand-wringing about the stock market rally. With major averages consistently making new records, the S&P 500 up another 1.5% after last year’s 16% gain, and the seemingly bottomless appetite for IPOs and SPACs (Special Purpose Acquisition Company), investors want to know: What could bring stocks tumbling down?

Mohamed El-Erian thinks the path of least resistance continues to be upwards as equities float along in a “rational bubble,” a phenomenon outlined in a Financial Times article earlier this year.

But there are four risks to the continued rally. El-Erian, the president of Queens College at Cambridge University and the Chief Economic Adviser to Allianz, outlined those risks in an interview with Yahoo Finance Live.

First, the least likeliest risk is that the Federal Reserve would pull back on its monetary stimulus. But as Fed Chair Jay Powell said just Thursday in a webinar, “Be careful not to exit too early.”

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