What it means
Markets move in waves of different lengths. Short waves last weeks or months, medium waves follow the business cycle, and the longest waves reflect deep shifts in the economy such as changes in interest rates, technology or demographics.
A secular bull market is a long rising trend, while a secular bear market is a long period in which prices make little or no net progress. The key point is that even within a secular trend there are cyclical swings.
A secular bull market will include sharp falls that feel like crises, and a secular bear market will contain strong rallies that tempt investors back in. The long direction only becomes clear in hindsight.
This matters in business because many financial plans assume a steady long-run return. If a company or pension fund assumes that stock markets will grow at a set rate and then lives through a long flat period, its planning gaps can be large.
Treasury teams, pension trustees and investment committees therefore look at where valuations and interest rates sit in the longer cycle. Analysts disagree about when a secular trend starts and ends, and the dates are usually drawn after the fact.
Some define it by price highs and lows, others by changes in valuations or economic conditions. Treat any claim about the present phase as an opinion rather than a fact.
For a non-finance reader, the practical lesson is about time horizon. A plan that works over twenty years may look poor over five if a secular bear phase is underway.
Diversification and regular contributions are the usual ways to cope with that uncertainty. Business leaders can use the idea when thinking about long-term investments such as new factories or product lines.
A project that depends on a long period of cheap money, for example, carries extra risk if the wider trend is about to change. Stress-testing against both kinds of environment is a sensible habit.
In practice
Real-world examples.
Example
A pension fund trustee reviews its return assumptions after a long period of flat equity prices. She asks the actuary to test the fund against a ten-year scenario with no net gain. The test shows that contributions would need to rise, so she brings the finding to the next trustee meeting.
Example
A founder selling shares in her company notices that valuations across the technology sector have risen steadily for years. Her adviser warns that a secular rise does not rule out a sharp fall, and suggests selling in stages. That way no single date decides the outcome.
Example
An investor in his fifties moves part of his savings from shares into bonds as he nears retirement. He does this because he cannot know whether the next ten years will bring a secular bear phase. The shift lowers the swings in his savings as the date he needs the money approaches.
Formula
Calculation
Total gain over the trend = (ending value - starting value) / starting value
Suppose an index fund holding grows from $100,000 to $300,000 during a twelve-year secular bull market. The total gain is (300,000 - 100,000) / 100,000 = 2.00, which is 200%. Inside that trend, a cyclical fall of 20% in year five takes a value of $180,000 down to 180,000 x 0.80 = $144,000. The investor who stayed in still ended the period well ahead of the starting point.Case study
Seen in the real world.
Greystone Retirement Trust is an illustrative, fictional pension scheme that assumed an average return of 8% a year on its shares. After ten years of flat markets, its funding level had slipped and the sponsoring employer faced a call for extra contributions.
The scheme's finance committee reviewed the assumption and found that it had been set during a long rising phase. They reset the return assumption to a lower figure and spread contributions over a longer period.
The employer's cash plan became more realistic, and the trustees began reviewing the assumptions every few years. The illustrative lesson is that long-term planning should not rely on one phase of the market continuing forever. The committee also decided to show the board a range of outcomes each year rather than a single expected return.
Watch out
Common mistakes.
- Confusing a secular trend with a cyclical swing and treating a short rally as the start of a new long trend.
- Assuming that a secular bull market means prices never fall, when sharp declines happen within it.
- Claiming to know which phase the market is currently in, when secular turning points are usually only recognised long afterwards.
Questions
People also ask.
Does secular mean the market is not religious?
No, in this context it comes from a Latin word for an age or long period and simply means long-term.
How long does a secular market last?
There is no fixed length, but it is generally measured in many years, often ten to twenty or more.
Can an individual investor profit from a secular trend?
Yes, by holding diversified investments and staying invested through the short-term swings, though results are never guaranteed.
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