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 investors sentiment, stocks experience selling pressure over an extended period of time.

Key Takeaways

  • A secular market is driven by forces that cause the price of investments or an asset class to rise or fall over a long period.
  • A secular bull market has positive conditions such as low-interest rates and strong corporate earnings that bolster equity markets.
  • Secular bear markets exhibit selling pressure within equity markets over an extended period, which might be due to economic weakness.

Understanding 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.

Both secular bull and bear markets can have corrections, but the long-term secular trend remains intact.

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 but also economic conditions such as a healthy, consistent demand for products and services.

Bull Market

A global bull market in stocks and other risky assets began in early 2009 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 effectively flooding 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, in 2020, with the lockdown and economic downturn, the markets declined by more 20% effectively ending the bull market. The equity markets could rally in late 2020 and throughout 2021, which might spark debate as to whether the secular bull market has really ended.

However, global economies are facing high unemployment and a recession as the economic backdrop. As a result, it doesn't appear that any equity market rally would have the overall favorable conditions that are needed to define it as a continuation of the secular bull market.

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. E-commerce, 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.