US stocks will overcome international headwinds and outperform their global peers going forward, top economist Mohamed El-Erian says

  • US stocks will take a hit from the economic crisis taking place in Asia and Europe, top economist Mohamed El-Erian warned.
  • But it’s still likely to outperform its peers due to the resilience of the US economy and the US dollar.
  • “The west is going to suffer quite a bit in the next 12 to 24 months, [but] the US is in a good position to consolidate its gains,” he said.

US stocks are going to take a beating from the economic crisis taking place in Asia and Europe – but even with international headwinds, US markets will still outperform its peers, according to top economist Mohamed El-Erian.

“The US will outperform other markets, other economies, and other currencies consistently,” El-Erian said in an interview with CNBC on Tuesday. “People who want to fade the US in favor of other jurisdictions simply don’t understand the extent to which the US is more resilient, more agile than other parts of the world.”

He pointed to the energy crisis looming in Europe and Asia, as both continents are at risk of being choked off from Russian gas supplies, which has led global energy prices to skyrocket.

That’s been a big factor in growing European debt and inflation so far, spelling trouble for its economy. JP Morgan analysts found that Europe’s energy import costs have quadrupled in the last few months, and expect European inflation to hit 10% this year.

Inflation is also bearing its toll on Asia, as the result of high energy prices as well as the economic impact of China’s lockdown restrictions, which the country is slowly easing out of. The International Monetary Fund slashed its growth estimates for China to 3.2% this year, down from the 3.6% it predicted in April.

Meanwhile, US inflation is showing subtle improvement: July’s Consumer Price Index quelled slightly to 8.5% inflation, and some analysts have speculated inflation could start to come down rapidly into early 2023.

And despite promises of more central bank hikes, the labor market is still resilient, adding twice the amount of jobs than expected in July. Rate hikes have also led the US dollar to dominate foreign currencies in an impressive rally this year: As of Wednesday, the dollar was at parity with the euro, and was valued at 1 dollar to 6.97 Chinese yuan.

But that doesn’t mean the US is completely immune from international pressures, El-Erian warned, as experts have pointed that the economy is still vulnerable to supply chain issues stemming from China, as well as the energy shortage in Europe. US stockpiles have been hit from extra shipments to Europe, which has the potential to send the US into its own energy crisis this winter. 

So far, the S&P 500 has erased about half of its gains from the summer bear market rally, with mixed predictions of an impending crash or another high for the stock index next year.

“It is impressive we are in the green given what’s been happening to the world,” El-Erian said. “The west is going to suffer quite a bit in the next 12 to 24 months, [but] the US is in a good position to consolidate its gains.”

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