Economist Mohamed El-Erian: "Actions have a difficult path ahead; cash is the best option for investors"

Stocks and bonds have a tough road ahead, with cash being the best option for investors sensitive to the latest bout of market volatility, according to renowned economist Mohamed El-Erian, Business Insider writes.

Allianz's chief economic adviser recently increased his holdings of cash and cash equivalents, which can deliver annual returns of around 4-5% to investors given current interest rates, according to an interview with the Financial Times .

"If you feel uncomfortable in the stock market - as I do - there is a very good place to put your money, where you can earn 4-5%, which will compound," said the economist. "There will come a time when I'll feel more comfortable increasing my exposure to stocks, but right now I'm quite cautious."

At the other end of the risk spectrum, El-Erian puts money into distressed debt instruments. "Slowly, slowly we will return to a more normal environment, where traditional correlations and therefore traditional methods of reducing risk will return ... I can tell you the destination, but the journey is really difficult," said the economist.

Rising interest rates and tightening financial conditions by the Federal Reserve have already weighed on stocks and bonds, and the prospect of long-term high rates has sparked a sell-off in US Treasuries, sending prices lower and yields higher, which with the maturity of ten years approaching 5% yield recently. In the stock market, the S&P 500 is down 20% in 2022 as higher borrowing costs hurt corporate activity.

Allianz's economic adviser has repeatedly drawn attention to the dire outlook for the economy, with high interest rates helping to lower inflation but risking pushing the economy into recession. In El-Erian's view, the risk of a recession has increased after ten-year US Treasury yields hit a sixteen-year high, according to Business Insider.