Economist Mohamed El-Erian is shedding light on the dislocation in the financial markets, drawing sharp contrasts between a booming tech sector and a weakening sovereign backdrop.
What Happened: On Tuesday, in a post on X, El-Erian pointed out the “historically unusual combination” of the S&P 500 hitting record highs, Gold trading at near record highs, while the U.S. Dollar continues to languish.
He attributes this divergence to a range of factors, most notably the outperformance of U.S. tech companies despite policy volatility and macro uncertainty. “Well-funded, dynamic, and highly competitive, these companies are thriving despite an unusually high level of policy-induced uncertainty,” he says.
He compares the prevailing sentiment to “being a great house in a transitioning neighborhood,” with the tech sector being the “great house,” and the rest of the American economy and policy environment being the “neighborhood,” but adds that “corporate America is not the sovereign.”
El-Erian concludes by saying that there is more analysis to come, on the “dispersion with other parts of the economy and three possible reconciliation factors.”
Why It Matters: Despite the S&P 500 hitting a record high last week, underlying weakness was hard to ignore, with the median stock still 11% below its 52-week high. The gains are being driven by a narrow group of megacap tech names, while most of the index continues to lag.
This is evidenced by the diverging performances of the SPDR S&P 500 ETF Trust SPY which tracks the S&P 500, and the Invesco S&P 500 Equal Weight ETF RSP, its equal weighted counterpart.
| ETF | Year-To-Date Performance |
| SPDR S&P 500 ETF Trust SPY | +7.56% |
| Invesco S&P 500 Equal Weight ETF RSP | +6.39% |
Economist Nouriel Roubini had made similar remarks a couple of months ago, saying that it doesn’t matter even if “Mickey Mouse is president, the economy will keep growing,” thanks to innovations and momentum driven by artificial intelligence.
Roubini said, “Artificial intelligence is set to transform a dozen major sectors, propelling economic growth,” which he says will lead to 4% growth in the U.S., before hitting 6% by the end of this decade.
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