Appearing on "Squawk Box," the chief economic advisor at Allianz said he is encouraged by developments on a potential Covid-19 vaccine and the lack of a dramatic spike in new cases as states moved to reopen parts of their economies.
Real-time data showed businesses and households were reengaging in the economy, said El-Erian. "The big hope is we sustain it, and now the marketplace has embraced it."
Speaking before Tuesday's opening bell, El-Erian said he likes that the premarket action showed investors were adding risk in a widespread manner.
"It's not just stocks. It's other risk assets. It's fixed income. It's currencies, and it's commodities," he said. "So it's really good to see an across the board risk-on tone, which we haven't had really for quite a while."
In the first trading session of a holiday-shortened week, Dow futures were indicating an opening pop of more than 600 points on Tuesday, which indeed happened.
Earlier this month, Massachusetts-based Moderna reported positive developments with its vaccine trial.
Additionally, investors were applauding that economic activity was picking up as virus-related business restrictions continue to be eased in states across America.
El-Erian, former CEO of investment firm Pimco, said data across a variety of economic categories — from credit cards to restaurant reservations to TSA travel checkpoint numbers — all "point to engagement."
As for infection data, El-Erian noted there is a lag between when restrictions are eased and when new cases will show up. "So far, it looks OK-ish. Some pick up in cases but nothing dramatic. But let's keep an eye on that."
"This is not going to be a smooth process," he added. "There's going to be ups and downs but keep on eye both on the health side and on the engagement side and that will give you a very good view as to where we're going."
El-Erian has been warning about the economic consequences of Covid-19 since early February and correctly predicted in early March that coronavirus-driven selling would continue until a bear market was reached. He has urged investors to use caution due to the uncertainty around the public health crisis.
"I do not like betting on things I don't understand," El-Erian said Tuesday. "I cannot predict the health progress, and I cannot predict moral hazard on the policy side. Others feel very confident doing that so it's a matter of choice."