Secular Market

What Is a Secular Market?

A secular market is a market that is driven by forces that could be in place for many years, causing the price of a particular investment or asset class to rise or fall over a long period. In a secular bull market, positive conditions such as low interest rates and strong corporate earnings push stock prices higher. In a secular bear market, where flagging corporate earnings or stagnation in the economy leads to weak investor sentiment, stocks experience selling pressure over an extended period of time.

Understanding a Secular Market

Secular markets are typically driven by large-scale national and international trends, which could occur in tandem. The markets, including stocks and bonds, move in trends over the years. A bull market is an overall backdrop that exhibits investor confidence, favorable economic conditions, and optimistic expectations where earnings and economic growth are likely to continue. In the stock market, a bull market is typically consistent with a 20% rise in stock prices usually measured by an index of many companies, such as the S&P 500.

Conversely, a bear market represents a backdrop of pessimism, fear, and the expectation that economic growth and the markets will decline in the future. In the stock market, a bear market is typically consistent with a 20% decline in stock prices.

A secular bull market can have corrections (defined as a drop of 10% or more from a market high) or bear market periods within it, but they will not reverse the trend of upward asset values. In other words, any declines in the market are more than made up for by the extended rallies in the market. The same is true for a secular bear market in that any rallies higher are short-lived where the bear market trend resumes its control, leading to falling asset prices.

In a bull market, a technical correction can happen when an asset's price becomes overly inflated. Conversely, in a bear market, a technical correction can happen when an asset's price become overly deflated.

Secular Market vs. Cyclical Market

A cyclical market is shorter in duration and typically exhibits seasonal or cyclical business conditions. A cyclical market exhibits peak-trough-peak movements. Cyclical stocks tend to move with macroeconomic conditions such as consumer spending or economic growth. However, once the growth wanes, cyclical stocks are typically sold off. A secular market is a long-term event with persistent conditions regardless of economic slowdowns and cycles.

Examples of a Secular Market

A secular market can include securities such as stocks. It can also encompass economic conditions such as healthy, consistent demand for products and services.

Bull Market

A global bull market in stocks and other assets began in early 2009. This was primarily in response to synchronized actions by central banks in the U.S. and around the world to lower interest rates and add monetary stimulus. These actions effectively flooded economies with "easy money."

From 2009 to 2019, there had been a number of corrections, but no event or set of economic or political conditions was serious enough to derail the bull market. However, starting in early 2020, with the COVID-19 pandemic resulting in a worldwide lockdown and economic downturn, the markets declined by more than 20%, thus ending the secular bull market.

The ensuing bear market was short-lived. A new bull market began in the spring of 2020 as governments around the world enacted sweeping monetary stimulus and relief measures to stabilize their economies.

Technology Demand

Though most often applied to the stock or bond market, a secular market can also be used to describe long-term demand for particular goods. The information technology market, for example, is experiencing secular growth that seems open-ended. Ecommerce, cloud services, artificial intelligence, and mobile devices are some of the underpinnings of the long-term secular growth that continues to drive the technology sector.

What Happens at the End of a Secular Bull Market?

A secular bull market ends when asset prices decline by 20% or more from recent highs. Prolonged price declines (generally two months or more) signal the end of a bull market and the beginning of a bear market. The end of a bull market is often marked by pessimism and investor concern over long-term economic growth. Investors may sell their equities and seek safety in cash or lower-risk investments, such as bonds or certificates of deposit (CDs).

What Is a Bear Market Rally?

During a secular bear market, there may be times when asset prices quickly increase in the short term. This temporary increase in prices is called a bear market rally. The bear market rally often only lasts a few days or weeks before prices head back down to new lows.

What Is Secular Growth?

Secular growth occurs when there is a long-lasting and essential shift in an industry or sector leading to substantial growth. For example, the shift to electric vehicles represents a profound change for the automotive industry. It provides growth opportunities for both startup companies and established manufacturers who are able to meet the demand for these vehicles. Another example of secular growth would be the rise of ecommerce, which has fundamentally changed the retail industry and the way people shop and purchase products.