Given different monetary and economic policies in the world's major economies, investors and financial firms alike should expect more divergence and volatility in the fourth quarter and next year, says Mohamed El-Erian, chief economic advisor of Allianz and former CEO of PIMCO.
These conditions, the economist said on Fox News early Sunday, should give investors pause and prompt them to sell some equity holdings.
"I would say given the very strong rally we've had, take some money off the table here — have some optionality. There will be bumps down the road. There will be lots of volatility. You want to have dry powder at this point," El-Erian explained during an appearance on "Sunday Morning Futures."
"Be ready for greater volatility, and be ready for picking up good companies at cheap prices," he added.
In terms of what Allianz-owned PIMCO is thinking about its portfolio holdings, El-Erian says dealing with divergence is the name of the game for the bond shop, as well as for others managing money.
"In general, we are going into a world where asset managers are going to have to offer more than products. They are going to have to offer solutions to their clients," El-Erian said.
"Why?" he asked, "because correlations are changing. Look at commodities — commodities have been coming down while equities have been going up. That is a very strange correlation historically. It reflects the fact that we have the interference of central banks with the functioning of markets."
This interference, along with weak growth in China, Japan and Europe, means the United States — while doing better than the rest of the world — "is facing headwinds," the economist notes.
"Over there, central banks are being forced to do even more," El-Erian said. "There's a growing divergence in growth [and] monetary policy around the world, which is causing quite a bit of issues for us."
