Hold on tight: July to kick off volatile 2nd half for markets

Not into bumpy rides or turbulence? Then brace yourself, because the second half of the year might give you a case of the jitters as financial markets are expected to remain volatile despite calls for more modest stock market gains in the U.S.

Investors got a fresh taste of volatility this week when Greek's worsening debt crisis roiled global stock markets and triggered Wall Street's biggest one-day drop in two years on Monday.

So what does the second half hold? After poring through a dozen mid-year reports issued by Wall Street market strategists, a few themes emerge.

* U.S. stocks will grind higher. Helped by both an improving economy and corporate earnings as well as more share buybacks from companies -- but hurt by fears of rising interest rates and above-average valuations and shocks like the Greece debt crisis or a hard landing in China -- stocks are likely to grind higher.

But domestic stocks could suffer a correction along the way as investors adjust to a shifting investment landscape. A correction is defined as a drop of 10% or more from a high. Investors might also reap fatter returns by investing abroad, where stock prices relative to earnings are cheaper and profit growth is more robust.

"U.S. equities remain expensive by historical standards," Jack Ablin, chief investment officer at BMO Private Bank, noted in his July outlook piece. "While valuation is not a market timing tool, it remains one of the biggest impediments to further gains this year."

* Expect more volatility and pullbacks. Despite touching all-time highs in late May, the stock market has basically been "treading water (rather) than moving sharply higher, and we expect more of the same in the second half of the year," Liz Ann Sonders, chief investment strategist at Charles Schwab, said in the firm's mid-year outlook.

"We expect the market to move gradually higher but with the ... possibility of more frequent pullbacks," Sonders warned.

At mid-year, despite making a number of record highs this year, the Standard & Poor's 500 index is up just 0.2% while the Dow Jones industrial average is down 1.1%.

* Fed angst will grow. Markets will also face the headwind of the prospect of the first rate hike from the Federal Reserve since before the 2008 financial crisis. And the threat of rising rates could prove worrisome for investors, as low borrowing costs have been a key driver of stock prices for years.

"We believe actions by the Fed to exit its zero interest rate and accommodative monetary policies appear to be on the horizon for later this year," according to LPL Financial.

Wall Street is bracing for a September hike.

The good news? Even if a correction does strike, it likely will be short-lived, argues Brian Belski, chief investment strategist at BMO Capital Markets.

"We do not believe that any sort of protracted weakness is on the horizon," Belski told clients recently in a report. "Bear market ingredients, such as recession, are not present."