The Dow Jones industrial average fell dropped as many as 536.94 points at session lows, while the S&P 500 broke below its August lows. The Nasdaq composite fell about 3 percent.
While stocks are still sharply lower, they have pared some losses.
"I think you can boil down everything going on in the market to three things. One is we are shifting volatility regimes," El-Erian said. "We've come from a period where central banks had been very successful in repressing volatility and now, either they can't or they're not willing to."
The CBOE Volatility index, considered the best gauge of fear in the market, traded at about 28 Friday, up 17 percent.
VIX in 2016Source: FactSet
The turmoil led investors to buy into safer asset classes, including U.S. Treasurys and safe-haven currencies. The benchmark U.S. 10-year note rose sharply Friday, and briefly yielded less than 2 percent. The Japanese yen gained about 1 percent against the dollar.
Stocks were also under pressure from the oil market, which saw U.S. crude futures settle at $29.42 a barrel Friday, down 5.71 percent.
"Second, we're starting from a situation where, because central banks were so successful, asset values were [up] and fundamentals were [down], so the minute you have doubts about the fundamentals — like we did this morning — you're going to impact asset prices," El-Erian said.
"Finally, let's not forget there's very little countercyclical liquidity, which means, when we hit a small air pocket, it turns out to be large."
El-Erian also said the sell-off in U.S. equities is not reflective of a slowdown in the U.S. economy, and pointed to the recently strong employment data. "It's really hard to drag the U.S. down, unless you get a major global financial crisis. I'm not a buyer that this is 2008. That was about the payments and settlements systems."
"This is different. This is about overvalued markets," he said. "The contamination to the real economy takes much longer and is not as hard as it would have been otherwise."