Top economist Mohamed El-Erian says sell risk assets now and warns 'a policy mistake is coming'

• The current market rally presents an opportunity for investors to shed riskier assets, according to Mohamed El-Erian.
• "I think there's just too much of a probability of a policy mistake, and we can't ignore what's happening to the global economy," he told CNBC.

Top economist Mohamed El-Erian said the current market rally presents an opportunity for traders to shed exposure to riskier investments.

"When I look at how well the market has done last week, my own inclination is to use the rally to lighten up on risk because I think there's just too much of a probability of a policy mistake, and we can't ignore what's happening to the global economy," he told CNBC in a Monday interview.

The geopolitical conflict, the Federal Reserve's monetary policy, and inflation all combine to create uncertainty for investors, though the likelihood of a Fed misstep is what concerns El-Erian most.

As a result, the current landscape is going to favor stock-pickers, and it will be a market of "great differentiation," according to the Allianz advisor and president of Queens College, Cambridge.

On Friday, the market capped off its best five-day stretch since November 2020, with the S&P 500 surging 6.2% and the Nasdaq adding 8.4% on the week. But some analysts agree with El-Erian that bumpy roads await moving forward.

Still, others are advising investors to do the opposite. JPMorgan last week said the crash in "bubble stocks" favored by Cathie Wood is likely over, and now is the time to buy them. The firm said many of the stocks down 80% or more have overshot to the downside, and it's time to start adding risk.

Meanwhile, legendary investor Mark Mobius said investors should stick to stocks to protect against inflation while the Fed hikes rates.

El-Erian said a general approach would be to sell into strength amid the recent upswing.

"Overall if you have a very high exposure to risk assets, the market has given you an opportunity to lighten up a little bit now here," El-Erian said.