Delta variant is one of the 'toughest' risks to model, says Jim Bianco

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.

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:

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: