The core conclusions are as follows: ① Historically, transitions from bull to bear markets were driven by deteriorating macroeconomic fundamentals and overheated market conditions. The current bull market, which began on September 24, 2024, has not seen its underlying logic broken. ② The recent correction resembles a thunderstorm within a bull market. From an annual volatility perspective, the outlook for the market remains positive. ③ Potential catalysts for market improvement include a de-escalation of geopolitical conflicts. Structurally, focus should be placed on AI applications, strategic resources, and undervalued legacy assets.
Drawing from historical patterns, a shift from a bull to a bear market results from a confluence of weak macro fundamentals and excessive market euphoria. Viewing markets through a cyclical lens, the cyclical pattern of bull and bear phases in the A-share market is an objective reality. These cycles are analogous to seasonal changes: a bull market resembles summer, a bear market resembles winter, and a ranging market resembles spring or autumn. What signals a seasonal shift from a bull to a bear market? A review of history shows that such transitions in A-shares typically occur when overall market sentiment is overheated and the macroeconomic environment has significantly weakened.
Taking the 2019-2021 bull market as an example, the market had accumulated substantial gains and valuations were already elevated. From a macro perspective, the pandemic in 2022 disrupted domestic production and business activities. Overseas, the Russia-Ukraine conflict that erupted in February 2022 caused a surge in commodity prices like crude oil, prompting the Federal Reserve to initiate a rate-hiking cycle. The weakening of both domestic and external factors triggered the transition to a bear market at that time.
Looking further back at the 2013-2015 period, in June 2015 regulators required securities companies to conduct self-inspections on external access and began clearing up off-market margin financing. This deleveraging in the stock market tightened micro-level liquidity and triggered a liquidity crisis, with margin loan balances dropping by over 700 billion yuan within a month from their peak in June 2015. Similarly, as market gains and sentiment were already exuberant at that time, the sudden withdrawal of liquidity led to the start of the bear market.
Finally, examining the 1999-2001 bull market, the environment was characterized by market concerns over a significant supply-demand imbalance due to the potential influx of massive non-tradable shares following state-owned share reductions. Strengthening financial regulation was a key policy focus that year, with measures like preventing illegal funds from entering the market being rolled out. By June 2001, A-share index valuations had reached historical highs, and a series of institutional changes prompted the market to begin its bearish decline.
The current bull market that started in September 2024 is not yet over. This bull market began on September 24, 2024. Its macro backdrop is somewhat similar to the bull market that started on May 19, 1999, as both involved macro policy efforts to combat deflation. As mentioned, transitions to bear markets typically occur when the macro environment deteriorates and stock market sentiment is euphoric. Currently, neither of these conditions is met.
From a macro perspective, policies in both China and the US are expected to remain loose and proactive in 2026. In China, the CPI remains low, PPI is still negative, and both property prices and loan growth have hit new lows, indicating that anti-deflation policies need strengthening, and the proactive policy stance is likely to continue. In the US, although expectations for Fed rate cuts have recently been tempered due to geopolitical conflicts, if the geopolitical situation becomes clearer, there remains room for further easing in overseas liquidity.
From a market perspective, compared to historical bull market peaks, neither the duration/magnitude of the current bull run nor market sentiment has reached extreme levels. In terms of the rally's scale and duration, the three typical A-share bull markets mentioned previously all lasted over 24 months, with the Wind All Share Index rising an average of 151%. As of March 23, the current rally has only lasted 18 months with a gain of 58% for the Wind All Share Index, suggesting significant room for further growth compared to historical precedents. Regarding sentiment, as of March 23, the PE ratio for all A-shares was 21.7x with an equity risk premium of 2.8%, still some distance from the peaks seen in 2007, 2010, 2015, and 2021, indicating sentiment is not yet frothy.
History shows that sharp阶段性 adjustments often occur in the mid-to-late stages of a bull market, corresponding to the Wave 4 correction in technical analysis. Since the recent pullback is not a signal of a bull-to-bear transition for the current cycle, how should this retreat be understood? In reality, a full bull market is rarely a smooth ascent, especially in its mid-to-late stages, where unsettling "thunderstorms" are common. For example, during the mid-to-late stage of the 2019-2021 bull market, significant pullbacks occurred in August 2020 and February 2021, triggered by a marginal tightening of liquidity. Similarly, during the mid-to-late stage of the 2013-2015 bull market, notable corrections happened in January 2015 and May 2015, induced by regulatory deleveraging. Likewise, during the 1999-2001 bull market's later phase, pullbacks occurred in August 2000 and February 2001 due to regulatory and external environment shocks.
According to Elliott Wave theory, a bull market can be divided into five waves, with Waves 1, 3, and 5 being impulse waves upward, and Waves 2 and 4 being corrective waves downward. Therefore, the sharp adjustments in the mid-to-late stage correspond to the Wave 4 correction. From a technical analysis standpoint, the Shanghai Composite Index's low of 2689 points on September 24, 2024, marks the start of Wave 1 of this bull market. The subsequent level of 3040 points on April 7, 2025, likely corresponds to the start of Wave 3. The market is now most likely experiencing the Wave 4 correction. Comparing this bull market (starting Sept 24, 2024) to the 1999-2001 bull market, the adjustment since January 2026 might be analogous to the correction from August 2000 to February 2001.
From a historical annual volatility perspective, the outlook for the market within the year remains positive. Furthermore, observing from an annual viewpoint, the A-share market has historically experienced high volatility. Even in typical bull market years, significant intra-year drawdowns are common. Reviewing representative years from past bull markets, the amplitude (low-to-high) of major indices within a year is often substantial. For instance, in the second or third year of a bull market, annual amplitudes of 30%-50% or even higher for the Shanghai Composite Index are not unusual. A long "lower shadow" on the annual bull market candlestick is a common technical feature, representing intense battles between bulls and bears where bulls ultimately prevail. It signifies the process of the market finding support during panic and regaining confidence.
Compared to history, the current amplitude of the A-share market remains relatively low. For the Shanghai Composite Index, since 2005, the average annual amplitude (excluding extreme values above 50%) is 35.1%. Measured by the Wind All Share Index, the central tendency for annual amplitude since 2005 is 31.4%. So far this year, the amplitude of the Shanghai Composite is only 12.3%, and for the Wind All Share Index, it's 10.5%, significantly below historical averages. If the index amplitude were to reach the historical central levels of 20% or 30% this year, and assuming the year's high was 4197 (at the start of the year), a 30% amplitude would imply a low around 2938, and a 20% amplitude a low around 3357. However, there are currently no significant negative signals that would drive the market down to such levels. Conversely, if the current low, driven by geopolitical concerns, represents the bottom area for the year, then from an amplitude perspective, new highs might be seen later.
The concept of the "Three Stages of a Bull Market" suggests a bull market typically unfolds in three phases, with the core logic being a progression of driving forces: initial policy easing, followed by fundamental improvement, and finally accelerated fund inflows. Recent market signs indicate the current bull market may be transitioning towards the third stage. Observing the pace of fund inflows through fund issuance, the average daily issuance scale of equity-oriented funds was about 1.6 billion yuan in 2024, 2.9 billion yuan in 2025, and has reached 5.2 billion yuan in the first three months of 2026.
Catalysts for clearing skies after the storm include: de-escalation of US-Iran tensions, effective domestic policy implementation, and breakthroughs in AI applications. Given that the bull market trend persists, when might this correction end? Three key signals warrant attention: First, a substantive easing of geopolitical tensions. Under constraints like high oil prices and mid-term elections, the US government has practical incentives to push for conflict de-escalation. On March 23, signals of negotiation emerged. Once tangible signs of external easing appear, the currently suppressed risk appetite in A-shares could gradually recover. Second, domestic policy efforts accelerating fundamental recovery. Current domestic macro policies remain proactive. If subsequent policy implementation leads to accelerated improvement in fundamental data, it could support the market. Furthermore, this year's emphasis on enhancing the inclusivity and adaptability of capital market systems, with follow-up policy advancements, could strengthen the market's intrinsic stability. Third, breakthroughs in AI applications driving a narrative shift. The global AI industry is in an upward cycle with密集 technological innovation. If breakthrough innovations emerge, especially hit products in AI applications, expectations for AI-driven productivity gains and macro growth improvement could strengthen, potentially shifting the market narrative.
Market structure is expected to become more balanced in the later stages of the bull market, suggesting a multi-pronged investment approach. Reviewing the last two bull markets reveals that the first half often features structural opportunities, while the mid-to-late stages tend to see more diversified hotspots and a broader market structure. For the current cycle, market structure was明显 differentiated in 2025, but since the beginning of this year, performance has broadened, with AI applications, domestic demand sectors, and strategic resources taking turns leading. Looking ahead, as this bull market progresses into its later stages, the structure is likely to become more balanced. Focus on three key themes:
First, the technology industry chain represented by AI applications. The global tech-driven upcycle persists. Beyond the previously strong hardware segment, two sub-sectors deserve attention: ① AI applications, where, analogous to the 2012-2015 tech cycle, the AI wave could spread from hardware to applications. ② Upstream energy and power, as AI development and geopolitical扰动 strain global energy and electricity supply. National initiatives to build a new power system, accelerate smart grid construction, develop new energy storage, and expand green electricity application present investment opportunities. Second, strategic resource sectors related to national security. Amid a complex external environment, the security premium for resources is likely to rise long-term. Coupled with domestic policies against internal competition and support from新兴 demand, commodity prices could be supported, benefiting strategic resource sectors. Third, undervalued legacy assets. Sectors like baijiu and property have undergone multi-year adjustments, with valuations and fund holdings at historical lows. Marginal improvements in the fundamentals of consumption and property are emerging. Prioritizing "expanding domestic demand" in policy reports, coupled with policy support and positive catalysts, suggests potential recovery opportunities for undervalued property and baijiu assets.
Risk warnings: Domestic and foreign policy developments may fall short of expectations; economic recovery could experience fluctuations.