According to Mohamed El-Erian, the best indicator of where the stock market is heading in 2023 is the 2-year Treasury yield.

  • According to Mohamed El-Erian, the best indicator is to watch the 2-year Treasury yield this year to understand the market.
  • “This is the market indicator that contains the most information,” he told CNBC.
  • He added that the history of disinflation is “more complex than we’d like.”

Investors looking for the best market indicator in 2023 should look at the two-year Treasury yields, economist Mohamed El-Erian said.

“If you want to know what’s going to happen this year, keep an eye on the two-year returns for now” he told CNBC on Monday. “This is the market indicator that contains the most information. And if it continues to grow, I will worry. If it falls again to 4%, where we were not so long ago, I will certainly be more optimistic.”

The two-year yield often outperforms the federal funds rate, which currently targets 4.50-4.75% and is considered the most sensitive to central bank decisions.

Yields rose 2.8 basis points to 4.541% on Monday, up from 4.036% on Feb. 1, before strong jobs data sparked fears that the Federal Reserve would keep rates higher for longer to cool the economy and bring inflation back under. control.

Fresh data on inflation will be published on Tuesday with a report on the consumer price index. And while analysts expect a further decline to 6.3%, that’s still well above the Fed’s 2% target. Some Fed officials have also recently warned that the benchmark interest rate could end up being higher than markets are expecting.

“The market is starting to feel that the very comforting story of disinflation is more complex than we would like,” El-Erian said.

He added that there is now something to worry about, because some goods are now signaling a change in the disinflationary process, including car prices.

“There is a lot more uncertainty about inflation, and because of that, more uncertainty about the Fed,” he said.

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