What is a Secular Bull Market? How to Identify this Market

Key Points

• Secular bull markets are sustained long-term uptrends in asset prices
• Economic trends fueling secular bull markets tend to be more persistent 
• Secular bull markets can often last many years, made up of different cyclical bull markets and corrections

Stocks don’t always go up, but sometimes a long-term trend persists beyond the daily ups and downs of volatile stock prices. When an uptrend remains intact for a long period, it’s known as a secular bull market, and it can sustain itself longer than even optimistic investors expect. But to invest properly, you’ll need to learn the difference between secular and cyclical markets and which factors influence them. 

Markets are made up of millions of participants with different goals and timelines. Some investors have short-term goals, while others take a longer view. This clash of short vs. long-term thinking is often the crux of many investing arguments, but it also provides a good example. Secular bull markets aren’t affected by an earnings miss or bad economic report; long-term sustainable factors drive them. In this article, we’ll discuss the differences between cyclical and secular bull markets and how investors should approach them.

What is a Secular Bull Market?

Imagine a river that flows in a particular direction toward the sea. It doesn’t flow in a straight line, with different tributaries branching out across the landscape, but the water all flows in the same general direction. Secular bull markets are like this too, when stock prices trend upward over time despite corrections or bear markets along the way.

Secular bull markets are characterized by persistent trends that move markets, such as extended periods of low interest rates, technological advances or sustained economic growth that buoys sentiment. A secular bull market is the rosier cousin of the bear market, which is often a short and volatile downturn. 

Identifying Characteristics of a Secular Bull Market

Market cycles are inevitable, and corrections are a part of every bull market. But what separates a secular bull market from a cyclical one? The answer comes from the duration and sustainability of the driving factors. Some common characteristics of secular bull markets include:

Multi-year Run

Secular bull markets are noted by their extended duration, often taking years or even decades to unfold. Some of the longest secular bull markets in US history include the bull run of the 1980s and 1990s, which saw long-term stock price appreciation despite several short-term drawdowns like the Long Term Capital Management meltdown and Black Monday in 1987.

Growth Across Sectors and Asset Classes

Sometimes, bull markets are driven by a particular niche, like AI, cryptocurrency or the finance sector. However, a secular bull market has broad growth across different stock sectors and asset classes. Not every industry or asset will participate, but the broader the rally, the more likely it is to be a secular bull run.

High Investor Optimism

Investor sentiment plays a prominent role in bull and bear markets. When secular bull markets rev up, this sentiment can reach a fever pitch as enthusiastic investors put more and more capital into stocks. Cautious optimism is often a characteristic of cyclical bull runs; investors are more exuberant during secular bulls.

Fundamental and Economic Tailwinds

A secular bull market is sustained over time, so promising underlying data is usually required. Some business and economic trends that fuel secular bulls include rising corporate earnings, expanding GDP, low unemployment and low interest rates.

How to Invest in Secular Bull Markets

Investing in secular bull markets might seem foolproof, but you still need to develop goals and a plan for your portfolio. Complacency has no place in investing, especially when market trends change quickly. Here are some time-tested strategies for investors.

Diversification

Never put all your cash into a hot stock or sector. Since secular bull markets are broad rallies, a diversified portfolio will still earn quality returns, and you’ll sleep better at night, too, knowing that your capital is allocated across a basket of companies.

Long and Short-Term Thinking

Investors should have plans for both the short and long term. Even if you’re investing for retirement, which could be 20-30 years off, you’ll still need a plan for managing your assets. How often will you rebalance? How long will you hold a losing position? Investing without a plan frequently means letting emotions manage the portfolio, and emotional investing leads to mistakes.

Manage Risk

Even when markets are optimistic, you still need to utilize risk management strategies to prevent catastrophic losses. Never invest in a manner that allows a correction or bear market to ruin your portfolio since avoiding every drawdown is impossible if you spend enough time in the market.

Secular Bull Markets vs. Cyclical Trends

Market cycles rise and fall, and it's vital to differentiate cyclical bull markets from secular ones. Cyclical bull and bear runs often occur within the broader scope of a secular bull market, which is more concerned with the long-term trend than the day-to-day gyrations of stock prices.

For example, the bull market following the Great Financial Crisis in 2009 had plenty of events that gave investors whiplash. Corrections followed the flash crash in 2011, 2016 and 2018, but the primary trend continued upward until the COVID-19 pandemic altered long-term market factors. Market cycles ebb and flow, but throwing off a secular bull takes a more substantial shock.

Navigating the Future of Investments

Secular bull markets are huge portfolio boosters for long-term investors. Stocks don’t always produce returns evenly, so participating in secular bull runs is crucial for building wealth. But even the most robust economies eventually buckle, and stocks never go straight up forever. Avoid complacency and always stay informed on market trends. Think long-term, adapt your portfolio as necessary, and always consult with an advisor before making any drastic changes to your plans.

Conclusion

Few environments are more exciting for investors than secular bull markets, which sometimes last 5-10 years and often bring innovation, economic growth and national optimism. But secular bull investing still requires a plan, so don’t ignore due diligence and understand why you own the stocks you own.

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Secular bull markets are long-term uptrends based on sustainable metrics that aren’t shaken by the typical business cycle. Want to learn more about bull market investing? MarketBeat has insight and strategies for investors of all ages and experience levels. Visit our product offerings page here and see what best fits your style.