Investing > Secular Market Explained

Secular Market Explained

Wish you could invest in a market that wouldn’t change? Maybe you can—with something called a secular market.  

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Updated January 09, 2022

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Do you like change?

Me neither.

Who does? Certainly not secular markets. Secular markets are a specific set of words used to describe long-term trends in the stock market that typically last for a period of years

Secular markets are unique, and even though there may be a momentary change in a secular market trend, it is classified as a secular market because it will quickly return to its previous trend after a momentary disruption. Therefore, there is room for profitability by investing in secular markets, as long as you understand how they work. 👨‍🏫

But just as they can be a secure place to put your money, secular markets can also end at any time, simply because of an event. A prime example of this can be seen in the market of the airline industry after the 9/11 attacks. Investors quickly sold off their shares following the event, correctly predicting that there would be a decline in flying out of fear.

And they were right; the events of 9/11 sent airline stock tumbling into a bear market where it would spend the next decade. This is why it is so important to learn how secular markets work before you invest; otherwise one single event could lose you all of your hard-earned money. 

Ready to learn about secular markets and how you should invest in them? Keep reading to learn more about secular markets and what they can do for your portfolio. 

What you’ll learn
  • What is a Secular Market?
  • Secular Bull Markets
  • Past Secular Bull Markets
  • Secular Bear Markets
  • Sector-Specific Secular Markets
  • How to Invest in a Secular Bull Market
  • Investing in a Secular Bear Market
  • Secular Market vs. Cyclical Market
  • Conclusion
  • Get Started with a Stock Broker

What is a Secular Market? 🤔

A secular market is a market that has been on the same, non-ending trend for an extended period of time. This trend must be in one direction, and although there can be momentary changes, a true secular market will return to its trend shortly after the disruption.

A secular market can be either a bull market or a bear market; it just needs to last for an extended number of months or years. Most analysts consider a market to be a secular market once it has passed 5 years in length. This would make the Great Depression of the 1930s an example of a secular bear market as it was a bear market that lasted almost 10 years.

secular market
The Great Depression lasted from 1929 to the late 1930s and is one of the longest bear markets in the history of the U.S. stock market. Image by TradingView.

In general, secular markets tend to move in cycles. This means that there will be a secular bull market, followed by a secular bear market, then followed by another secular bull market. This can be seen when you take a look at the history of the stock market in the United States, but we will circle back to this later. 

Secular markets generally change because of an event. This event can be something out of government control, such as the Dot-Com Crash of the early 2000s, or it can be in response to a policy change, such as the changing of interest rates. It isn’t always clear why secular markets change from bear to bull, but it generally has to do with investor outlook on the future. 

How Secular Bull Markets Work 🐂

A secular bull market is a market that is experiencing an upward trend for an extended period of time. Usually, a secular bull market is kicked off because of positive government policies, such as low interest rates and high corporate earnings. 

The combination of these factors gives investors a positive feeling about the market, leading them to purchase stocks. It’s important to remember that a secular bull market doesn’t always have to be on an upwards trend, and it can experience small downturns and still be considered a bull market. 

For example, the year 2012 began a secular bull market. Although stocks experienced a steep drop in March 2020 which resulted in a temporary bear market due to the coronavirus pandemic that swept the world, the market quickly recovered and continued its upward trend. 

A secular bull market is often characterized by people believing that there is no way that a market can possibly go any higher, but it inevitably does. The truth is, it can be difficult to predict the end of a secular bull market, as it often takes a truly disastrous event, such as the 1929 stock market crash, to end a secular bull market. 

Without a crystal ball, it can be difficult to know when an event like this is coming. Therefore, it is almost impossible to predict the end of a secular bull market. 

Past Secular Bull Markets 📗

Because secular bull markets tend to follow secular bear markets and vice versa, there have been many secular bull markets throughout history.

Post WWII Boom 🏗

The first was from 1945-1965. America was enjoying the posterity of a post-war nation that didn’t have to rebuild as most of the European nations did. Although the post war spending didn’t last, positive government policies led to increased consumer spending.

There were a couple short bear markets during this time as a result of government policies changing as well as in response to the assassination of JFK. Regardless, the bull market continued until 1966 when the Federal Reserve tightened credit policies using a method that was way too constrictive.

post-war bull market
The post-war bull market was the strongest period of growth the U.S. had seen up to that point. Image by TradingView.

This led to a credit crunch, in which very few banks wanted to lend credit. The U.S. stock market entered a secular bear market, which was propelled further by the changing of the tides of the Vietnam War, which took a turn for the worse in 1968. The secular bull market was officially over.

1974-2000 🗓

Following the announcement of Richard Nixon’s economic recovery plan, the economy slowly began to gain steam once again. After hitting rock bottom in October 1974, the economy was finally on its way to recovery. 

This secular bull market wasn’t without it’s trials, however, as there was a short recession from 1980-1982. But thanks to Reaganomics, investing once again became popular. Then, in the late 80’s and early 90’s, the economy continued to build on technology stocks, causing a massive period of growth that would last nearly a decade that would see a 400% increase in the S&P 500

The secular bull market of this period came to a screeching halt because of what is known as the dotcom crash which occurred around the year 2000. This crash happened because suddenly people began to realize they were investing without verifying the company behind the investments they were placing. 

dot-com bubble
The bull market that started in the mid-1970s culminated and ended in the tech bubble spurred by the popularization of the internet. Image by TradingView.

This meant a lot of companies went belly up, unable to return investment money to investors. The secular bull market was officially over. 

How Secular Bear Markets Work 🐻

Just as secular bull markets are a great sign that the economy is doing well, a secular bear market is a sure sign that an economy is having some trouble. 

A secular bear market is a market that is experiencing a downward trend for an extended period of time, typically 5 years or more. While there may be brief periods of economic posterity during a secular bear market, they usually don’t last long and the downward trend will return. 

Secular bear markets are usually started as a combination of negative government investing/finance policies, and world events. This is also paired with a negative outlook on the stock market that keeps investors away for an extended period of time. 

Just as it is impossible to predict the end of a secular bull market, it is also impossible to predict the end of a secular bear market. But typically, a more positive economic policy is needed to turn a secular bear market around. 

The good news is, secular bear markets seem to be much more rare, and to have a much shorter duration than secular bear markets, but this doesn’t make them any easier for investors to weather. 

The Great Depression 🕵️‍♂️

The Great Depression is the most famous secular bull market, and it lasted for 10 years, from 1929 until 1939. It started because of a stock market crash that left investors with nothing. 

This meant that many people didn’t have money to put into starting a business, or the money to pay their workers. Therefore many people found themselves jobless with no prospects in sight. 

Although the secular bear market reached its bottom in 1933, it would continue until 1939, when the prospect of a war increased government spending and factory output–thus putting Americans back to work. Thus this particular bull market came to an end thanks to government policy and increased spending.

2000-2010 ⌛

One of the next most famous secular bear markets actually happened quite recently. After the dotcom crash of 2000, many investors were hesitant to invest their money again. This kept the stock market in a period of decline in 2004.

dot-com crash
After the dot-com crash, it took the market a good 12 years to finally break through its previous all-time high. Image by TradingView.

The market began to take a turn for the better in 2005, as positive lending practices led by the U.S. government led to people taking out mortgages and investing once again. Unfortunately, this growth came to a stop in 2008, as people realized the mortgages they were investing in were faulty. 

This caused the stock market crash of 2008, meaning the bull market had only lasted for 3 years–not enough to qualify as a secular bull market, and the bear market continued until 2012. One of the only reasons this particular bear market seems to have turned around is the government bailout of Wall Street. 

Sector-Specific Secular Markets 📝

So far, we have discussed the stock market as a secular market overall, but it’s important to know that secular markets can also happen within certain sectors. 

This happens when a certain product or industry is in high demand for a long period of time or in decline for a long period of time. The best example of this would be the Airline industry, which entered a secular bear market after the events of 9/11. They were just getting back on track when the COVID19 pandemic caused further damage to their stocks

The reason the airline industry is often subject to a secular market is because air travel is often seen as a luxury instead of a necessity. This means it is much more susceptible to regulations and world events than other stocks on the stock market.

Thus, even though the U.S. entered a secular bull market in 2010, the airline industry remained in a secular bear market because it took longer for people to have enough discretionary spending money to travel by air again. And after the events of 2020, it is unclear when the secular bear market will end for airlines, even as most other companies recover. 

Another stock that tends to be quite secular is oil. Oil prices go up when people drive more, and go down when people drive less. This demand doesn’t always follow the path of the regular stock market and this is because people drive for a variety of reasons. 

For example, the oil industry entered a secular bear market because of the COVID19 pandemic. Although this bear market was short lasted for most U.S. stocks (33 days) oil found that their stock prices didn’t bounce back with the stock market because many people were still working from home and many airlines hadn’t yet gotten their demand back yet either. 

How to Invest in a Secular Bull Market 👷‍♂️

The good news is, investing in a secular bull market is relatively easy. All you have to do is identify a secular bull market, find a stock that you can invest in for the long term, and go for it.

The important thing to remember is that, with a secular bull market, you are specifically looking for stocks that will do well for years to come. And if there is a momentary downturn in the market, it has to be a stock you are willing to hold on to. 

Throughout 2021, for example, tech stocks seemed to be soaring. Thus, an investor looking to get in on the secular bull market would want to purchase some tech stocks, or perhaps a tech ETF that they think will continue to grow over time. 

During a secular bull market, stocks will be more expensive. For this reason you will probably want to use a dollar cost averaging method to invest, as it is unlikely that you will be able to buy a lot of shares of your stock outright. 

Additionally, as you invest, you want to be aware of the federal interest rates, as this could affect the future dividends of the stocks you are purchasing. You also want to prepare for the eventual change of the market as a result of the changes made to the national interest rates. 

Investing in a secular bull market can be a great experience, especially if you get to watch your money grow. But you also need to be cautious too, because a secular bull market could end at any time—which means it is wise to protect yourself by buying a bit of gold or some other assets that do well in a recession from time to time. 

Investing in a Secular Bear Market 💰

Investing during any type of bear market can be scary, especially a secular bear market. But there are many ways to do so that increase your chances of earning a return. 

The investments that you should look towards during a secular bear market, are the same commodities that you would purchase if you think a bull market was about to come to an end (known as a hedge against a bull market). These commodities are things like fixed-income securities like bonds, gold, and essential commodities.

Like some other “safe” assets, gold soared after the crashes in 2000 and 2008. Image by TradingView.

There are some variations however, because if a bear market has really low interest rates, but high levels of inflation, bonds are not a good bet because they won’t pay very much in interest, and certainly not enough to outpace inflation. So when inflation is really high, you may want to consider looking towards investments in value stocks like consumer staples

Because bear markets are tricky to invest in whether they are secular or not, you’ll want to do some extra careful research before you invest. 

Secular Market vs. Cyclical Market ⚖

A cyclical market is another market that experiences longer bear and bull periods. But unlike a secular market, a cyclical market is one that goes back and forth on a regular, and somewhat predictable basis. 

For example, during an economic downturn, cyclical stocks will be sold off predictably, and then when things turn around, investors will be willing to buy them again. This is because cyclical stocks tend to always experience the same ups and downs as a result of the same events, while secular markets will continue on the same path regardless of events. 

The airline industry is a good example of a cyclical industry, as airline stocks will rise during periods of economic boom, and predictably decline when there are periods of economic stagnation and downturn. These tend to go against the trend of the secular market at the time. 

Conclusion 💭

Overall, secular markets are long term market trends that can both be an investors dream, as well as their downfall. It’s important to understand why secular markets happen, and why they come to an end, before you put your money on the line. This way you will know what to expect and what you should spend your energy investing in. 

Regardless if it’s a secular bear market or a secular bull market, there is always an asset you can invest in. Just be sure you do your research on the market first, so you know what direction the market is going, and when you should expect the current secular market to come to an end.

Secular Market: FAQs

  • How Long Do Secular Bear Markets Last?

    A secular bear market can last anywhere from 5-20 years. Typically a bear market must last at least 5 years to be considered secular, so most secular bear markets are much longer in duration.

  • How Long Do Secular Bull Markets Last?

    Secular bull markets can last anywhere from 5-20 years, although there is the possibility for them to be even longer if the economic posterity continues. 

  • What is a Secular Growth Stock?

    A secular growth stock is a stock that will maintain its growth trajectory regardless of trends that are happening within the market. These are typically consumer staples assets. 

  • What Does Secular Mean in Economics?

    In economics, secular is a word that is used to refer to trends that continue over a long period of time despite short intermittent periods of change. 

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