The six-month stock market rally is based on temporary measures and could evaporate once government stimulus has run its course, Pimco's Mohamed El-Erian told CNBC.
Combined with a sharp reduction in inventory and cost-cutting, the stimulus has helped move stocks higher though that could all end when 2010 comes and reality hits, El-Erian, co-CIO of the world's largest bond fund, said in a live interview.
He is sticking to his earlier statement that the the market is on a mere "sugar high" that is bound to wear off.
"This is about 2010," he said. "It's clear we're going to have a nice bounce that's going to be a combination of stimulus and the inventory cycle. The reason why I'm calling this a sugar high is both stimulus and inventory cycles are temporary events, not permanent events. You need to see something permanent to kick in."
Troubling economic signs are pointing to weakness in demand, El-Erian said, citing Friday's jobless numbers as another reason to be wary.
The Labor Department said the unemployment rate moved up to nearly 9.7 percenteven though the actual number of job cuts was less than the market had anticipated.
"What these numbers are telling you is we have significant headwinds," he said. "We need demand to kick in, and those numbers are telling you we're not there yet."
Earlier this week, El-Erian's counterpart at Pimco, Bill Gross, warned that the market could be headed for a double-dip that will increase the allure of long-term government debt such as the 10-year note and 30-year bond.
Economist Nouriel Roubini also said Friday that a double-dip recession is possible, with at best a U-shaped recovery likely that will see below-par growth for the next two or three years.
El-Erian warned that credit issues are indicating more economic trouble ahead and 2010 will be "fascinating" to see how the scenario plays out.
"Importantly we don't have credit as the lubricant for the recovery," he said. "The recovery depends critically on wages, employment, wage rates. Remember, this is not a recovery where we can rely on credit...We really do need spending."