There are risks to the market rally, but they’ll have to materialize in a “big way” to have an effect, noted economist Mohamed El-Erian told CNBC on Wednesday.
He believes there is a “whole list of uncertainties” facing the market right now, including geopolitics, nationalism and the question of what happens if more than one central bank normalizes policy at the same time.
However, he told “Closing Bell” there is also “so much liquidity and there’s so much conditioning of investors to buy on dips.”
“You need a big shock in order to derail this market,” the chief economic advisor at Allianz said.
El-Erian said the biggest vulnerability is that asset prices have decoupled from fundamentals.
“Fundamentals are improving but asset prices have rushed ahead of that improvement,” he said.
That’s why he thinks tax reform is important, because it is key to have economic polices out of Washington and European capitals that actually generate high and inclusive growth.
“That’s what ultimately will make sure that we get a smooth transition. If we don’t get those polices then it’s a more questionable outcome.”
Republicans unveiled the framework for their tax reform plan on Wednesday, which they say will boost economic growth.