Former Pimco CEO Mohamed El-Erian told CNBC on Monday that the bond market has figured out what stocks haven't yet: The Federal Reserve, while remaining committed to supporting asset prices, is "targeting different things."
"We are in a transition [at the Fed] from a regime that was tool-based to a regime that is objective-based," he said. "We were told exactly what they were going to do. Now what we're going to do … is conditional on outcomes. That increases uncertainty."
Appearing on "Squawk Box," El-Erian also addressed why he decided to earlier this year leave Pimco, where he had been considered the heir apparent to founder Bill Gross. He said it was time for him to do something different and that it was a "difficult personal decision."
As for the central bank, which meets later this week, policymakers will likely reduce their quantitative easing in a fourth round of tapering of $10 billion to a pace of buying $45 billion worth of bonds and mortgage-backed securities each month, he said.
"They are going to be exiting QE by the end of the year," he continued. "They are going to keep interest rates at zero and they are going to strengthen forward policy guidance."
The stock market is in a tug-of-war between the changing Fed and geopolitical uncertainty on one side and renewed merger activity and earnings momentum on the other, El-Erian said.
"All the corporate actions, for me if you put them all together, they fundamentally speak to companies increasing comfortable going from defense to offense. That's good."
Read MoreChurning market means gut-check
But he stressed that Ukraine is serious. "If sanctions go from targeting individuals to targeting sectors you can tip Europe into recession, and the stock market is not going to like that."
Barring a worsening situation in Ukraine, El-Erian expects Europe to grow about 1 percent to 1.5 percent this year. He puts U.S. growth at about 3 percent.