A "range-bound" market could soon swing more dramatically, and an "overshoot" may send stocks 10 percent lower in the coming months, Mohamed El-Erian said Thursday.
"Don't be surprised if you see a 5 to 10 percent move the other way, because that's what we've been having actually for a while now," the Allianz chief economic advisor told CNBC's "Fast Money: Halftime Report."
El-Erian said a market dip is not a certainty. But he noted, regardless of which direction stocks go, he expects they will trade in a wider range than they have in recent weeks.
His comments came as U.S. stock markets slid Thursday, with the major U.S. averages falling about 0.3 percent each. Oil prices also dipped.
El-Erian outlined why stocks could overshoot in either direction. Liquidity injections from central banks and companies, through buybacks and mergers, can push rising markets even higher, he said.
But he noted that falling markets can also "amplify" the effects of weakening fundamentals.
In recent weeks, stocks have erased dramatic losses from the start of the year. The is down nearly 1 percent this year, but has climbed about 4 percent in the last month.
He said multiple factors have driven markets higher recently. Fears of a recession in the United States have fallen, El-Erian noted.
"Things in the U.S. aren't that bad," he said.
He added that companies continue to pump money into the market through repurchases and acquisitions.
Earlier this month, El-Erian told CNBC that U.S. markets have not yet come to terms with the emergence of anti-establishment politicians like Republican presidential front-runner Donald Trump.
"It hasn't been priced in yet, but I think that there is an uncertainty premium that is going to come from the political side," he said.