World Markets

El-Erian: 2016 will be all about volatility

Fundamentals pushing markets down: El-Erian
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Fundamentals pushing markets down: El-Erian

Volatility spiked to start 2016, and investors should expect market swings often this year, Allianz's chief economic adviser, Mohamed El-Erian, contended Monday.

El-Erian believes traders will have to learn how to play sharp market moves, both upward and downward. He stressed that they will need a "stomach for volatility."

"This year is going to be all about exploiting volatility on the way up and the way down," he said on CNBC's "Fast Money: Halftime Report."

Mohammed El-Erian
Bernard Samra | CNBC

El-Erian's comments came after an overnight plunge in Chinese stocks triggered a circuit breaker, pressuring equities worldwide and helping to send major U.S. averages more than 2 percent lower. Increased tensions in the Middle East and renewed concerns of a global slowdown also weighed on markets.

Last month, El-Erian said a divergence in monetary policy would set the tone for 2016. He pointed specifically to Federal Reserve tightening amid possible easing from central banks in Europe and Asia.

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However, the latest concerns about a global slowdown, including manufacturing sector contraction in the U.S., could cloud the policy situation. El-Erian said that Monday's market slide marked a "continuation of last year," driven by concerns about growth and geopolitical issues.

He cited the theme of "fundamentals pushing markets down and liquidity not being there" to prop them back up. A path of "liquidity-supported growth" driven by years of easy Fed policy will "likely end," El-Erian contended.

The U.S. central bank hiked the target for its benchmark federal funds rate in December for the first time in nearly a decade. El-Erian stressed that the latest global concerns likely would not prompt a reversal in Fed policy.

However, he believes the Fed will raise interest rates twice this year, as opposed to a plan for up to four gradual hikes supported by some Fed officials.