El-Erian Says Markets Continue To Draw Strength From 3 'Views' Gaining More Traction This Year

Allianz chief economic adviser Mohamed El-Erian pointed to three main factors behind the recent market gains.

“Markets continue to be bolstered by 3 views gaining more traction this new year: Sustained boosts to global demand/supply as #China re-opens; Less concern about European and US #growth due to their solid labor #markets: and Moderating #inflation leading to a less hawkish #Fed,” El-Erian tweeted.

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Major Wall Street indices have recorded gains ranging from 2.5%-5.2% since the beginning of 2023 as optimism over a decline in inflation gained momentum. 

The SPDR S&P 500 ETF Trust SPY gained 3.86% this year, while the Invesco QQQ Trust Series 1 QQQ gained 4.94%. Investors and traders are keenly awaiting the release of consumer price index data on Thursday.

Fed Comments: Increasing number of Federal Reserve officials are sounding less hawkish ahead of the next FOMC meeting scheduled at the beginning of February.

Susan M. Collins, president of the Federal Reserve Bank of Boston, reportedly said she was leaning toward a 25 bps interest rate hike at the next FOMC meeting. 

Other Fed officials had also asserted the case for a quarter-point hike.

Atlanta Federal Reserve Bank President Raphael Bostic told reporters on Monday if U.S. consumer price data confirms the cooling seen in the most recent monthly jobs report, he would have to take a quarter-point increase "more seriously and to move in that direction."

Similarly, San Francisco Fed President Mary Daly reportedly said lags between Federal Reserve interest-rate increases and their effect on the economy could be an argument to raise rates by 25 bps rather than a half point.

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