Secular Bull Markets and Secular Bear Markets

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You may have heard reporters and investors talking about bull and bear markets in your quest to understand how the markets work. Bull and bear markets are fairly simple to understand—once you know how they function and what influences them, you'll begin to notice the mini-fluctuations within each of the types of market conditions.

These mini-fluctuations that occur during an overall upward or downward trend are called cyclical and secular trends. Secular trends range for longer periods of time, while cyclical trends are fluctuations that occur over a short period of time within secular trends.

Understanding the two sub-type of trends can help you develop strategies for investing during market trends, some of which can last for decades. This knowledge will help you base your investing decisions on the overall market when prices are rising and falling—and if history is any indicator, this will demonstrate that as time goes by, the highs and lows will both continue to be higher, cementing the points that time and patience are the most important factors in investing.

  • Each type of market circumstance has two sub-types—secular and cyclical.
  • Each sub-type is part of a larger overall market trend.
  • Keys to returns in both market circumstances and each sub-type are long-term goals in investing.
  • Time and patience yield results.

Trends Within Bull and Bear Markets

Market corrections are instances when investments undergo a rapid price change that is between 10% and 19%. When a market shifts 20% or more, it is considered to be one of two types—either a bull market where prices are trending upward or a bear market where prices are trending downwards.

Bull and bear markets are then further classified into different categories. Market trends can last for as little as a day or for years. When a trend lasts for longer periods of time, it is referred to as a secular trend.

Each market type has smaller trends within shorter periods of time that trend up or down. These are called cyclical market trends. The Dow Jones graph demonstrates the shorter secular and cyclical trends that can occur during longer secular trends.

It is generally understood by investors that both secular bull markets and secular bear markets tend to last between five and 25 years.

Secular Bull Markets

In secular bull markets, stocks tend to rise more than they fall with any setbacks being more than compensated for by the subsequent increase in stock prices. Secular bull markets can be thought of as taking two steps forward and one step back—although there are setbacks during a secular bull market, there is always progress upward.

Past Secular Bull Markets

One of the most recent and famous secular bull markets is the period between 1983 and 2000 when the United States entered into one of the greatest economic expansions in U.S. history. More recent, and with a similar amount of growth, is the economic expansion that has occurred since June 2009 (both as measured by gross domestic product, or GDP).

FRED GDP Historical Graph
 St. Louis Federal Reserve FRED

The Dow Jones Industrial Average has been rising for the last 30 years—even when accounting for inflation, the Great Recession, and other downturns in the economy.

While this is not commonly referred to as a secular bull market, it is an exaggerated example of one. Note the increases over smaller lengths of time, such as from January 2003 to September 2007—this is an example of a secular bull market.

Dow Jones Industrial Average History
 Data retrieved from Yahoo Finance

Although there were certainly bear markets contained within each period, such as the Black Monday crash of October 1987 when stocks suffered the biggest one-day drop in history and the dot-com bust of 2000, the overall trend was such that an investor who bought and held stocks would have made a great deal of money, drastically increasing their assets, value and net worth.

How to Invest in a Secular Bull Market

Secular bull markets are the more simple market circumstance to invest in. They are more lengthy than secular bear markets; also, a look at both the Dow and S&P shows that prices have continued to rise over time, even after recessions.

Investing in bull markets is traditionally done by purchasing stocks, mutual funds, commodities, and derivatives of them all. Investors tend to take on more risky investments during a bull market.

Secular Bear Markets

In secular bear markets, on the other hand, the overall trend is one of wealth reduction as the real purchasing power of stocks decline more than they advance. Using the Standard & Poor's 500 Stock Index as a measurement, there were two recent secular bear markets, with the most recent occurring between October 2007 and February 2009. Although stock prices dropped notably, they eventually more than doubled.

Past Secular Bear Markets

There were two notable secular bear markets between 2000 and 2009. One was the dotcom bubble collapse, and the other was the Great Recession brought on by the sub-prime loan crises.

Secular Bear Markets
 Data retrieved from Yahoo Finance

How to Invest in a Secular Bear Market

Nevertheless, secular bear markets can present good investment opportunities because businesses and stocks will be worth much less than they would be worth in a bull market—and history has shown that the market will rebound.

Purchasing stocks at lower prices during a bear market, and then sitting on them has worked for some investors.

Investors tend to shy away from risky investments during a secular bear market. They will reduce their holding of stocks, preferring to instead transfer holdings into U.S. Treasuries and corporate bonds that are known to perform through market downturns.

Precious metals are also another favorite of investors during secular bear markets and downturns. Many of these metals do not lose value during this market occurrence. Derivatives can be used to invest in metals and not be required to take possession of them. You can also invest in physical gold itself, but this requires methods to store it which can become expensive.

The Bottom Line

As you explore investing, learn the different types of investments that perform well in the different types of markets. Successful investors build their portfolios to generate earnings no matter where the market takes them, based on knowledge, research, and patience.

Investors such as Warren Buffett and Charlie Munger made all of their initial fortunes purchasing during a secular bear market, and then holding the purchases—proving that if you develop an investment strategy, and focus on value and the long-term, you have a very good chance of experiencing investing success.

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  1. Robert J. Schiller. "Popular Economic Narratives Advancing the Longest U.S. Expansion 2009–2019," Journal of Policy Modeling.

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