The Delta coronavirus variant will hit the reflation trade in the casino-like stock market, says top analyst David Rosenberg

Trader on the floor of the New York Stock Exchange
US stocks are near record highs despite rising COVID-19 cases.

  • Top analyst David Rosenberg recommended investors stay away from “reflation” stocks as Delta COVID-19 cases climb.
  • He told CNBC that rising cases and a reduction in fiscal stimulus will create headwinds for the US economy.
  • Rosenberg said the stock market has become like a casino, but the bond market tells the truth about the economy.
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The rise in Delta-variant coronavirus cases and a reduction in fiscal stimulus will weigh on the US economy over the next several months, leading market analyst David Rosenberg has said.

Rosenberg said on CNBC that investors should therefore stay away from the “reflation” stocks that tend to do better when the economy is stronger. Such reflation stocks have typically included banks and energy companies.

He also warned the equity market has become like a casino that is detached from economic reality.

“The on-again, off-again massive fiscal stimulus is in the rear-view mirror, and so we have that, and we have the question marks in front of the Delta variant,” he told CNBC’s “Trading Nation” on Friday. “It’s going to be a very challenging outlook for the economy in the next several months.”

Read more: Goldman Sachs says these 31 downtrodden, virus-exposed stocks are poised for a resurgence as they offer robust double-digit sales growth through year-end

“You don’t have to basically abandon the stock market, but I definitely would not be in the value reflation cyclical trade,” said the analyst, who was Merrill Lynch’s most senior economist from 2002 to 2009 and is now the president of Rosenberg Research.

“I would be in the areas that are more, call it, defensive growth. That could be healthcare, consumer staples, could be utilities.”

The US registered a seven-day average of 79,763 new reported coronavirus cases on August 1, up from 32,068 two weeks earlier, according to New York Times data.

Rosenberg said that the stock-market has “frankly become a bit of a casino”, as the S&P 500 stands at around all-time highs despite a cloudy US economic outlook.

He highlighted the US’s second-quarter reading of gross domestic product, which missed expectations in late July. GDP rose at an annualized rate of 6.5%, compared with expectations of an 8.5% increase.

Rosenberg said the bond market is telling the truth about the economy, with yields down sharply from March highs as investors have priced in slower economic growth and inflation.

The yield on the key 10-year US Treasury note, which moves inversely to the price, has fallen to 1.234% from above 1.7% at the end of March. Investors tend to buy bonds and accept lower yields when they expect growth and inflation to be low.

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Israel is freezing flights in and out of the country to slow the spread of COVID-19 strains

FILE PHOTO: Israeli Prime Minister Benjamin Netanyahu, wearing a protective face mask, attends the weekly cabinet meeting at the Ministry of Foreign Affairs in Jerusalem, June 14, 2020. Sebastian Scheiner/Pool via REUTERS
FILE PHOTO: Israeli Prime Minister Benjamin Netanyahu attends the weekly cabinet meeting

  • Israel will ban inbound and outbound flights by foreign airlines to slow the spread of COVID-19 strains.
  • Haaretz reported the freeze will take effect early Tuesday morning and last until January 31. 
  • Emergency medical flights, firefighting planes, and legal travel will be permitted, according to the report.
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Israel will ban foreign airlines from flying in and out of the country until January 31 to curtail the spread of new COVID-19 strains.

The country’s cabinet on Sunday approved plans to freeze flights starting at midnight between Monday and Tuesday, Haaretz reported Sunday. Flights leaving the country will only be approved in rare instances. Firefighting planes, emergency medical flights, and cargo aircraft won’t be affected by the policy. Domestic airlines will also face some new restrictions.

Prime Minister Benjamin Netanyahu praised the new travel policy, saying in a government meeting “no nation has done what we are about to do,” according to Haaretz.

“We are hermetically sealing the country,” he added.

Read more: More than 200 coronavirus vaccines are still in development as the initial vaccine rollout ramps up. Here’s how experts anticipate 2021 playing out.

While several countries have reinstated travel restrictions to slow the virus’s spread, Israel’s latest motion is among the strictest actions yet. Many countries are now requiring passengers to show proof of a negative COVID-19 test before flying internationally.

Flights leaving Israel for legal or medical reasons will be permitted, as will those for family funerals or relocations. Travel for personal or humanitarian needs will require approval by the government’s directors-general of health and transportation, Haaretz reported.

The flight halt also marks the first time that Jewish people won’t be able to immigrate to Israel unless it’s “a matter of life or death,” transportation minister Miri Regev reportedly said in the meeting.

The harsher travel restrictions come as new variants of COVID-19 rapidly spread around the world. A new, more contagious strain that originated in the United Kingdom has already affected several in Israel and could fuel a new wave of cases. The country’s Health Ministry said Saturday that six out of seven hospitalized pregnant women were found to have been infected with the UK strain.

Separately, one of Israel’s biggest health insurers recently warned of the variant’s spread. Leumit Health Maintenance Office CEO Haim Fernandes said last week that up to half of its tested members had caught the UK strain, Haaretz reported.

Israel reported 4,933 new COVID-19 cases on Saturday, according to Johns Hopkins University data. Since the pandemic’s onset last year, the country has seen more than 4,300 virus-related deaths.

Read more: From abortion care to LGBTQ rights, here’s how Joe Biden is prepared to tear up Donald Trump’s restrictive gender policies

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US stocks close mixed as stimulus optimism clashes with new virus strain

nyse open floor traders mask.JPG
  • US stocks closed mixed on Tuesday after Congress passed a multitrillion-dollar spending bill that includes $900 billion in new stimulus.
  • The package, which also funds the government through September 30, includes $600 direct payments, $300 in additional federal unemployment benefits, and aid for small businesses. 
  • The fresh fiscal support locked horns with concerns around a new strain of COVID-19 in the UK. The variant’s emergence prompted several European nations to enact travel restrictions on UK visitors.
  • Oil futures fell as investors viewed the new virus strain as a risk to near-term energy demand. West Texas Intermediate crude fell as much as 2.4%, to $46.60 per barrel.
  • Watch major indexes update live here.

US equities closed mixed on Tuesday as investors weighed Monday’s stimulus vote against the emergence of a new coronavirus strain in the UK.

Congress approved the measure Monday night after months of negotiations over additional fiscal support. The bill, which includes $900 billion in new stimulus, funds the government through September 30. The package also includes $600 direct payments, $300 in additional federal unemployment benefits, and funds for the Paycheck Protection Program.

Here’s where US indexes stood at the 4 p.m. ET market close on Tuesday:

Read more: BANK OF AMERICA: Buy these 16 medtech stocks with strong fundamentals that are set to soar post-pandemic

The White House has indicated President Donald Trump will sign the bill. Economists have largely backed additional fiscal support, though the slowed pace of economic recovery and rising COVID-19 cases still present sizeable risks.

“The $900 billion fiscal aid package is months late and will likely fall short of what is needed to prevent a rough winter, but it’s better than nothing,” Gregory Daco, chief US economist at Oxford Economics, said, adding the measure will “partially buffer the current economic slowdown” while vaccines are distributed.

Enthusiasm toward the new fiscal support was somewhat offset by reports of a new COVID-19 variant in the UK. Several European countries implemented travel restrictions on UK visitors to slow its spread.

Fears were somewhat allayed later in the day after public health experts said Pfizer and Moderna’s COVID-19 vaccines are likely effective against the new strain. Still, the new restrictions and virus fears threaten to tamper down on already weakened economic activity.

Read more: Brooke de Boutray has beaten 99% of her peers over the last 5 years and runs a fund that is up 148% in 2020. She shared with us 4 stocks she’s most bullish on heading into 2021.

Economic indicators also flashed some warning signs. US consumer confidence unexpectedly fell to a four-month low this month as surging COVID-19 cases and stricter lockdown measures offset a slight improvement in Americans’ long-term outlooks, Conference Board said Tuesday. The organization’s sentiment gauge fell to 88.6 from 92.9, while economists expected a jump to 97.

The tech and real estate sectors outperformed, while communications-service and energy stocks lagged.

The Nasdaq composite index was lifted by Apple, which extended a late Monday climb following a Reuters report that the iPhone maker aims to produce electric cars by 2024. The news also boosted lidar-sensor producers, as Apple reportedly plans to partner with such firms for its vehicle systems.

Peloton soared after the company inked a deal to buy exercise-equipment company Precor for $420 million. Peloton plans to use Precor’s facilities to boost its manufacturing capacity and cut down on its order backlog.

Read more: A fund manager at JPMorgan’s $1.9 trillion asset management arm breaks down the 6 high-conviction bets he’s making to stand out from the crowd next year – and shares the 2 biggest risks on his radar

Bitcoin rose back above $23,000 after plunging the most in nearly a month on Monday. The cryptocurrency faced pressure after the US Treasury proposed rules that would require exchanges to collect information from users who transfer more than $10,000 to a crypto wallet.

Spot gold erased early gains and fell as much as 1%, to $1,858.97 per ounce, at intraday lows. The US dollar strengthened against all of its Group-of-10 peers and Treasury yields dipped.

Oil prices fell amid fears that the new COVID-19 strain will further cut into demand. West Texas Intermediate crude dropped as much as 2.4%, to $46.60 per barrel. Brent crude, oil’s international benchmark, declined 2.7%, to $49.56 per barrel, at intraday lows.

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