The Wall Street forecaster who warned investors to brace for once in a generation inflation has a new concern: Delta variant cases sparking new economic restrictions.
According to Jim Bianco, the emerging risk will hinder the ability to pick market winners and losers into fall.
"This is the toughest one [risk] for investors to get their head around," the Bianco Research president told CNBC's "Trading Nation" on Wednesday.
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In Bianco's bearish scenario, rising Covid-19 cases would hurt economic activity and earnings.
"You could see a big rotation away from the reopening stocks," said Bianco, who sees gaming, hotel, airline and cruise line stocks among the most vulnerable groups.
On the other hand, he believes the risk could boost technology and stay-at-home trades. If the delta variant continues to spread, Bianco sees a high probability of more stimulus money.
"You can take a playbook out of last year and say 'If we get rising variant and we get restrictions, more stimulus money is coming.' And, what have we learned about stimulus money? It goes right into the brokerage account. It goes right into the stock market," said Bianco. "The flows in ETFs' record was late March when we got the $1200 checks."
Despite the challenging backdrop, Bianco expects the broader market to hold up until the end of the year.
"For the next several months, we can argue inflation is transitory or not. We're not going to get a resolution on that. [The] stock market will be okay," he said.
He expects all that to change by year-end. Bianco has been bracing for a troublesome inflation comeback since last year. He told CNBC's "Trading Nation" in October an inflation surge may force the Fed to abandon its easy money policy much sooner than intended.
And, he's reminding investors the stock market is not cheap.
"It's near record high valuations," Bianco 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."
As of Wednesday's close, the S&P 500, tech-heavy Nasdaq and Dow are less than 1% from all-time highs.