Bankruptcies, rather than U.S.-China tensions and political divisions, pose the biggest threat to the U.S. equities rally, Mohamed El-Erian, the chief economic advisor at Allianz, told CNBC in an interview.
"I think what derails this market isn't more China-U.S. tension, isn't more political differences — it would be if we get then large-scale bankruptcies," he said. "That is what derails this market. Otherwise, you have a very strong technical supporting this marketplace."
He explains that technical indicators have been driving the market rally in recent weeks. "It's all been about technicals and that allows the market to over and over again to shrug off fundamentals."
While there is a limit to how far technicals will support the market, it can go on "for quite a while."
El-Erian said he worries about "structurally embedded" economic damage that large bankruptcies could produce.
"Bankruptcies go from short-term liquidity problems to long-term solvency problems," he said. "If you get that then unemployment becomes more problematic, and you get capital impairment."
And capital impairment is one thing that Fed money can't fix, he added.