Bull market quietly enters new phase

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by Chen Zhao

The bull equity market may be making a quiet transition to a new phase, characterized by slower price gains and perhaps higher volatility. Such a transition is never obvious in advance. Only in hindsight do investors realize that the market trend, though still on a rising path, has turned a bit flatter.

Currently, G7 stocks are being buffeted by two opposing forces: a strengthening U.S. economy, low interest rates and a much cheapened dollar on the one hand, which is propelling stocks higher, and high and rising oil prices, fears concerning Japan’s nuclear disaster, the prospect of fiscal austerity and fading policy support working to stall the market’s advance on the other.

Overall, the equity bull market that began in March 2009, remains intact, but the investment environment will become much more challenging. Investors need to reduce their return assumptions and expectations and be prepared to embrace more price volatility.

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