Former PIMCO head Mohamed El-Erian said Friday that the "next few days will be critical" for the stock market, as investors see whether the recent rebound can maintain its upward momentum in the face of incoming earnings reports.
Speaking to CNBC, the advisor to Allianz and Gramercy pointed to recent weak results from Snap ( NYSE: SNAP ) as a test of market sentiment. He added that he thinks the S&P 500, which currently sits at around 4,000, will likely re-test the June lows around 3,600.
"We have played out interest rate risk. We haven't yet played out recession or credit risk," he said.
El-Erian noted that the SNAP earnings showed flat revenue at the social media company, despite an increase in its user base. He argued that this indicated "there's something going on in the business" likely tied to a "softening in enterprise advertising."
Snap ( SNAP ) dropped 30% in Friday's premarket trading after reporting sluggish Q2 revenues and withdrawing its forecast for Q3.
The news from the social media firm put pressure on other internet companies. Facebook parent Meta Platforms ( META ) dropped 5% before the opening bell. Google parent Alphabet ( GOOG )( GOOGL ) fell about 3%, while Pinterest ( PINS ) retreated by almost 7%.
Twitter ( TWTR ) also announced its results, posting a loss for the quarter and reporting a revenue figure that missed expectations. TWTR dropped almost 3% in premarket action.
For El-Erian, SNAP's troubles pointed to a broader issue, providing another signal that the "global economy is slowing in a rapid fashion."
The closely watched analyst contended that a "policy mistake" from the Federal Reserve and other central banks allowed inflation to persist, which means they now has to aggressively raise interest rates even as economic signals point to a slowdown.
"I'm seeing the economy slow and I think the Fed has no choice but to hit the brakes because it's so late," he said.
For a deep dive into SNAP's earnings, see why Seeking Alpha contributor Michael Wiggins De Oliveira thinks the selloff is justified .
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Mohamed El-Erian: Next few days critical for stocks, Snap shows broader economic issues