The bull market is being propelled by a few key forces that reflect a pickup in overall sentiment, but there are two obstacles that could slow the rally, Allianz's Mohamed El-Erian said Tuesday.
"The stock market is being driven by three very powerful things. One is better global economic data. Two is cash continuously being put back into the market," El-Erian said. "And third, expectations that Mr. Trump's pro-growth announcement[s] will translate into policies."
But Allianz's chief economic advisor told CNBC's "Squawk Box" that two headwinds could dull those market drivers.
"If the U.S. outperforms, which [it] looks like it will, if the Fed hikes two to three times this year, which it looks like it will, then the dollar will continue to appreciate, and that's going to create a headwind," El-Erian said.
Following that, politics will also play a role as the Trump administration reveals more details about some of its key economic policies, he added.
"Keep an eye on next week's State of the Union because markets are looking for more details on where Congress is going to move on tax reform, on deregulation and on infrastructure spending," El-Erian said.
He contended that the market rally has not yet broken out of its "volatility phase" and that it needs clarity on President Donald Trump's policy measures to do so.
"There's a limit to how far you can push prices without actually delivering on policies," El-Erian said. "Markets cannot just have the fuel of announcement. At some point, they need detailed design and they need implementation."