The stock market is unlikely to see a major pullback until a shock breaks its recent trading pattern, according to Mohamed El-Erian. El-Erian, chief economic advisor at Allianz, told CNBC's " Squawk Box " on Monday that the stock market would likely continue to shake off any weakness until the impact of Federal Reserve's policy plan becomes more clear. "Look what we learned last week — we had a wobble, and we came straight back. And we shouldn't be surprised, because the market is so conditioned to buy on dips," he said. Professional investors and strategists often say small pullbacks in the 5% to 10% range are healthy and to be expected in a bull market. However, the recent run-up for U.S. stocks has gone an abnormally long time without such a slide. El-Erian said there would need to be a "major shock" to break the tendency of investors to buy any dip. Those shocks could be a policy mistake from the Fed or a "market accident," he said. Several central bank officials have called in recent weeks for the Fed to begin reducing its asset purchases in the coming months, a process commonly called "tapering." However, El-Erian thinks most market participants believe the resurgence of Covid-19 will make it difficult for the Fed to taper its asset purchases later this year. El-Erian has been critical of the central bank's approach, arguing the Fed has kept its accommodative policies in place too long. He said the next few months would be key to seeing if the he or the central bankers are correct. "We're not going to find out whether we're in a major policy mistake until the end of the year. I think we are. I think inflation is not going to be transitory. I think people underestimate the inflation dynamics," he said. El-Erian has extensive experience working at the intersection of markets and government policy, holding an executive role at PIMCO during the financial crisis and serving on President Barack Obama's Global Development Council.
Olivia Michael | CNBC
The stock market is unlikely to see a major pullback until a shock breaks its recent trading pattern, according to Mohamed El-Erian.