Delta variant is one of the ‘toughest’ risks to model, says Jim Bianco
- Delta variant cases could result in economic restrictions
- Reopening stocks likely to be impacted warns Bianco
- Another stimulus package round could be on the way
Wall Street forecaster Jim Bianco is recommending investors hold a cautious stance amid inflationary concerns but the coronavirus’s Delta strain represents an incremental risk. According to Bianco, this emerging risk will make it challenging to choose market losers and winners into fall, he said on CNBC’s “Trading Nation”.
Delta variant could worsen the economic situation
Bianco said it is tough for investors to prepare for the coming months amid increasing cases of delta variants and the response from all levels of government that could result in new shutdowns.
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“This is the toughest one for investors to get their head around. If we are going to get restrictions because of a rising, Delta variant, is that bullish or bearish? Well, you could argue that it’s bearish because it would retard economic activity. It would retard earnings for a lot of the reopening stocks and they’ve been underperforming.”
Notably, according to Bianco, there is a massive shift from reopening stocks, and he sees the most vulnerable groups to be those in the cruise line, airline, gaming, and hotel. However, this risk could be a boon for tech stocks and stay-at-home plays. Surprisingly, should the delta strain spread worsen, the case can actually be made this would be a catalyst for stocks to move higher. He said:
“You could take a playbook out of last year and say, if we get rising variant and we get restrictions, more stimulus, money’s coming, and what did we learn about stimulus money? It goes right into the brokerage account and it goes right into the stock market. The flows in ETFs record was late March when we got the $1,200 checks. And so you could also look at it and say, the rising variant is going to lead to more stimulus money.”
Inflation concerns remain
Aside from new COVID-19 concerns, investors will continue debating in the coming weeks if recent inflationary pressures are transitory or not. We might not have an answer in the coming months but the “stock market will be okay,” he said. However, we should have an answer before the start of 2022 and investors should approach the new year with a cautious stance.
Specifically, the stock market is trading near-record high valuation levels and for momentum to continue the remainder of earnings season needs to impress. He said:
“It needs to continue to give this blowout earnings like we saw with some of the tech companies in the last day or two.”