Financial markets are losing the security blanket that’s bailed them out of trouble so many times, top economist warns

Stocks continue notching record high after record high as the AI boom overwhelms fears about the global oil shock, but markets are doing it without a long-implied safety net.

That’s according to Mohamed El-Erian, chief economic adviser at Allianz and chair of Gramercy Funds Management, who warned in a Financial Times op-ed that a decades-old “policy put” is vanishing.

Until recently, monetary policy and fiscal policy were often employed when stock markets crashed, eventually causing investors to expect policymakers to come to the rescue.

“This has deeply conditioned market psychology, with many investors viewing volatility not as a signal of fundamental developments, but as a virtually automatic buying opportunity,” he wrote.

This belief is part of the reason why market selloffs no longer last very long, El-Erian added, pointing to the rapid stock rebound after the Iran war began, even as the Strait of Hormuz remains effectively closed.

For now, AI stocks and hundreds of billions in capital expenditures from hyperscalers are fueling markets, while investors look past shrinking real incomes and plummeting consumer confidence.

But high inflation, elevated interest rates, and soaring debt limit the ability of central banks and lawmakers to respond to downturns, El-Erian warned.

“While the willingness to shield markets may endure, the capacity to do so is less,” he said.