The market may be worried about what the delay in the Republican health-care bill means for tax reform, but that isn't what's driving stocks these days, noted economist Mohamed El-Erian told CBNC on Tuesday.
Earlier in the day, Senate Republicans pushed back the vote on their health-care measure until after July 4, because they didn't have enough votes for its passage.
"The market wasn't betting on a massive pro-growth set of legislations out of Washington. I think the market has reduced that expectation. We are now dependent on liquidity," the chief economic advisor at Allianz said in an interview with "Closing Bell."
El-Erian has been saying recently that the market is in the middle of a very powerful liquidity trade that has "totally overwhelmed everything."
That trade is being fueled by three things — corporate cash, wealthy investors willing to buy on the dip and central bank monetary policy, he explained.
While the corporate cash infusion and buy-the-dip mentality are still going strong, the central bank component looks like it is diminishing.
In fact, there has been recent commentary by central bankers that may have implications for markets that have been conditioned to believe that central banks will always be supportive, he said.
On Monday, the New York Federal Reserve's president and CEO, William Dudley, said record stock highs, the recent narrowing of credit spreads and falling bond yields could encourage the Fed to continue tightening U.S. policy.
"When financial conditions ease, as has been the case recently, this can provide additional impetus for the decision to continue to remove monetary policy accommodation," he said according to prepared remarks published by the New York Fed.
And on Tuesday, Federal Reserve Board Vice Chair Stanley Fischer warned that the U.S. central bank must remain vigilant in monitoring financial stability risk.
"They're getting more hawkish. They're getting more worried about financial stability and that suggests to the market that perhaps they're not going to be as supportive as they've been in the past," El-Erian said.
For now, he counsels investors to "focus on the three sources of liquidity and see how they balance out over time. That's what's going to determine where the market goes from here."
— Reuters and CNBC's Silvana Henao contributed to this report.