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Phases of a bull market
A bull market can usually be classified into 3 phases. Phase 1 is where the "easy" gains occur, there is widespread skepticism towards the equity rally and valuation multiples surge in anticipation of the coming recovery in earnings.
We are now in phase 2 of the bull market, where trading conditions become much choppier, and earnings growth merely helps to justify the previous surge in valuations. The difficulty with today's market is that analysts have revised up earnings estimates much quicker compared to previous post-recession rallies. Only sectors most hurt by Covid are yet to fully price in the recovery.
We think there's more value in stock selection and country/sector rotation in phase 2 of the bull market. Eventually we will enter phase 3 where persistent earnings growth becomes the main driver of equity gains as the economic cycle matures.
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