Some of the world\u2019s biggest money managers are wary of chasing the stock rally further in the second half of 2025, bracing for more volatility.<\/p>\n
Markets are wrapping up a wild six months that saw the S&P 500 plunge 19% from peak to trough, before it recouped those losses. The index closed at a record high on Friday after the ceasefire between Israel and Iran revived the risk-on rally.<\/p>\n
The recent bounce is not enough for many institutional investors, who cite a litany of risks confronting equities. The fast-approaching deadline for tariff deals, a mixed outlook for earnings and questions around America\u2019s debt and leadership of the Federal Reserve loomed large in interviews with investment firms. They\u2019re also mindful of US-China tensions, potentially eased somewhat by the countries\u2019 just-announced trade framework.<\/p>\n
\u201cWe are more cautious than constructive,\u201d said Joe Gilbert, a portfolio manager at Integrity Asset Management LLC. \u201cThe outlook for the second half of the year is always framed by the starting point, and that starting point from the perspective of valuation and earnings growth is not that attractive.\u201d<\/p>\n
Gilbert\u2019s view is typical of the downbeat sentiment among institutional investors from Singapore to London and New York as June draws to a close. It\u2019s also reflected in equity positioning by global asset managers, which remains well below historical levels.<\/p>\n
Here\u2019s more about five key risk factors that stock investors said they are watching closely for the rest of the year:<\/p>\n
Tariff Deadline<\/p>\n
An immediate threat to the equity rally lies in the July 9 deadline set by President Donald Trump<\/a> to reach trade pacts with major US partners. The stakes are high as exporters without a deal will be hit with much higher tariffs than the current 10% level applied to most countries.<\/p>\n The UK is an outlier, having secured an agreement on paper. The European Union and the US believe they can clinch some form of trade agreement in time, Bloomberg News reported Friday, while talks with India, Japan and many others continue. Bloomberg News has also reported that the US is nearing agreements with Mexico and Vietnam.<\/p>\n Still, investors got a reminder of the risks of sudden turbulence in this area of international relations when Trump on Friday said he would terminate trade talks with Canada in response to a 3% digital services tax.<\/p>\n Investors generally agree that a tariff shock for markets on the scale of \u201cLiberation Day\u201d in early April is unlikely. There are also hopes that the deadline could be pushed out. Still, Anthi Tsouvali, a strategist at UBS Global Wealth<\/a> Management, said that while \u201cmarkets are not complacent anymore, there are risks until a firm deal is announced.\u201d<\/p>\n Tsouvali said she has a neutral stance on equities. \u201cThere\u2019s going to be a lot of uncertainty, a lot of volatility,\u201d she said. \u201cWe are not taking active risk.\u201d<\/p>\n Earnings<\/p>\n Corporate resilience has been a key support for the sharp rebound in US stocks <\/a>since April. Analysts on average expect earnings for S&P 500 companies to rise 7.1% this year before an acceleration in 2026, according to data compiled by Bloomberg Intelligence.<\/p>\n That will be put to the test within a few weeks as second-quarter results roll in. The last earnings season saw companies across the world pull forecasts for the year, citing cost increases and weak consumer sentiment.<\/p>\n Also Read<\/strong> | US market opens at fresh high amid trade deal hopes, but analysts warn<\/a><\/p>\n A June survey by the Business Roundtable showed C-suite executives were more pessimistic than three months earlier, with fewer expecting to ramp up hiring or capital spending. That said, Trump\u2019s $4.2 trillion tax-cut package \u2014 facing a key Senate vote in the week to come \u2014 could provide a boost to companies struggling with tariff hikes and costs to rejig their supply chains.<\/p>\n \u201cWithin this more challenging environment, you\u2019ve got to think that those growth expectations have got to come down,\u201d said Louise Dudley, a portfolio manager at Federated Hermes. For the broader market, \u201cperhaps the most that we can expect is a sideways move from here,\u201d she said.<\/p>\n Geopolitics<\/p>\n An end to hostilities between Israel and Iran has pulled oil prices lower, easing a worry for equity investors about how this would feed through to inflation and complicate the Fed\u2019s path to interest-rate cuts. Still, the boost to sentiment is fragile as uncertainty swirls around the future of Iran\u2019s nuclear program.<\/p>\n Also Read<\/strong> | Jay Thakkar of ICICI Sec suggests THESE shares to buy in F&O segment<\/a><\/p>\n \u201cDespite this temporary relief, we continue to see geopolitical risk as structurally elevated,\u201d said Francisco Sim\u00f3n, European head of strategy at Santander Asset Management. The firm retains an underweight stance on equities, favoring a \u201ccautious and selective approach,\u201d he said.<\/p>\n The fraught relationship between the US and China<\/a> also keeps investors on edge. They will be scouring for details of a trade framework the two sides said this week that they have reached. Among key points are whether the agreement will free up access to Chinese rare earths for American companies and remove obstacles for Chinese tech companies in obtaining cutting-edge US chip technologies.<\/p>\n US Debt, the Fed<\/p>\n The US lost its last top credit rating in May amid deepening investor concerns over its ballooning debt. Meanwhile, Trump\u2019s tax-and-spending bill is expected to add trillions to federal debt over coming years.<\/p>\n \u201cWe know that the problem is not going away,\u201d said Neil Robson, head of global equities at Columbia Threadneedle Investments. He noted that a market meltdown sending bond yields surging and equity valuations plunging remains a low probability event. \u201cBut we got to be aware,\u201d he said.<\/p>\n