Despite a steady flow of positive economic news, fears over European debt contagion have prevented investors from believing that a U.S. recovery has taken hold, Pimco's Mohamed El-Erian told CNBC.
Friday's solid jobs report, showing a drop in the unemployment rate to 8.5 percent, and the subsequent tepid market reaction emphasized the theme that until Europe gets a stronger handle on its crisis, improvements in the domestic economy will have little impact.
Stockstraded mostly in negative territory following the nonfarms payroll news, while bond yieldsfell as fears grew that signs of growth could be fleeting.
"It's not enough to get a good number," said El-Erian, co-CEO of Pimco, which runs the largest bond fund in the world. "You need a really good number, and we didn't get that today."
Three worries trouble the markets, he said:
1) Growth is being driven by an unsustainable drop in the national savings rate.
2) Europeis still dangerous, even though the headline risk has abated in recent weeks.
3) The desire to shed debt will continue to hold back growth.
Among the latest fears to stoke the euro-zone fire: A drop in the euro against the U.S. dollar, worries that more credit downgrades are coming, and a general feeling of malaise emphasized by banks' making record deposits into the European Central Bank rather than loan money out to help spark growth.
"It's unlikely that Europe will be able to muddle anymore," El-Erian said. "That's not going to happen. They cannot kick the can down the road for another year. They have to make a choice."
Closer to home, El-Erian said U.S. investors are unlikely to get much help from the Federal Reserve, which indicated in minutes released earlier this week some interest among governors to try to stimulate the economy.
"The reality for us all is not the willingness of the Fed to do something. There's a willingness there, it's the ability and the effectiveness" that is in question, he said. "There aren't any really effective instruments at the disposal of the Fed anymore."