Rates, Risk Will Make or Break Second Half

On "Morning Call," two strategists agreed--naturally enough--that interest rates are a prime stock market mover. But they split on where rates and stocks are headed as the economy enters the fiscal year's second half. Ned Riley, CEO of Riley Asset Management, and Alan Lancz, president of Alan B. Lancz & Associates, offered their predictions to CNBC's Carl Quintanilla.

Lancz declared that "interest rates, not oil, not private equity" will be the "No. 1 factor" dictating stock market activity in the second half. In early June, rate hikes topped his expectations, rendering him bearish.

Lancz said that June "put risk back in investors' equation," citing rising rates, "subprime loans and higher energy" as stimuli for "more volatility and 100-point swings" in the future.

Riley is more optimistic. He concedes that energy is still at $70 per barrel, but maintains that "the bottom line is that inflation is tame."

"Right now, the inflation rate is in target for the Federal Reserve," he pointed out.

He said that the idea of the federal funds rate rising to 5.50% from its current 5.25% "spooks him -- but i don't think we're going to get to five and a half." Riley believes the market has "very apprehensive investors" -- but insists that the "reasons everyone cites for a correction have already been discounted."