A high bar for the second half of the year

It's a bit hard to appreciate how good the first half of the year was for risk assets, yes there was a lot going on, but Laura Cooper, global investment strategist at Nuveen, says that "by the numbers it was one of the best halves in recent years."

The S&P 500 .SPX finished the quarter up close to 15%, the Nasdaq .IXIC advanced more than 20% and the Philadelphia Semiconductor Index .SOX posted its best quarterly performance on record at 88%. Every major fixed income asset class finished in the green, with emerging markets the standout and credit spreads at levels not seen since before the financial crisis.

Some think this can continue — take a look at the previous blog from UBS Wealth Management for that view — but Cooper is less sure. She says "markets may have priced much of the good news" and the "room for error that carried markets through the first half has been largely spent."

"The first half worked because the shocks arrived one at a time. A geopolitical crisis here, an inflation scare there, a hawkish Fed repricing somewhere in between. Each was digested before the next one arrived. The second half may not be so accommodating."

She's far from outright bearish but until Nuveen are more confident that AI spending can translate to earnings growth, credit can absorb another wave of supply and consumer resilience holds up they are being more cautious.

"Our preference is for quality through dividend growers, free cash flow compounders and second-order beneficiaries in electrification, industrials and select software over the most capital-intensive parts of the value chain," she says.

"Outside the US, European banks, defense and industrials offer diversification."