What are Secular Bull & Bear Markets?

April 18, 2013

The terms bull (up) and bear (down) market generally refer to cyclical gains or losses of 15% to 20% or more. Each up or down market cycle generally lasts from several months to a few years. Over 10 to 20 year periods, the stock market cycles through multiple bull and bear markets. These longer-term cycles are called “secular” bull and bear markets.

Secular Bear Markets

When investors ride through up and down markets for more than a decade without any meaningful net gain, they have experienced a secular bear market. 
During a secular bear market, there are shorter-term bull and bear periods, but the bull markets fail to bring substantial new highs.

One example of a previous secular bear market was the period from 1966 to 1982. Like the trailing 13 years, the broad stock market dropped dramatically a number of times, and it recovered just as dramatically, only to fall again.

secularbear-66-82Source: Ned Davis Research. Click on image to see a larger version.

Another secular bear market spanned from 1929 through the early 1940s.

These sideways periods share similar outcomes, but they don’t always seem to happen for the same reasons: in the 1960s, for example, the U.S. economy faced stagnant growth and very high inflation; in the Great Depression, there was severe joblessness, deflation and a global financial crisis.

Secular Bull Markets

Secular bear markets eventually give way to secular bull markets.

During a secular bull market, the market continues to cycle through shorter-term bull and bear markets. The difference is that bear markets are generally shorter and relatively shallow and bull markets lead to sequentially higher highs.

Investors who own stocks for a decade or longer in a secular bull market earn handsome gains.

One example of a secular bull market is from 1945 through 1965, but a more recent example is the 1980s and 1990s, shown below.

During this period, the market continued to suffer regular pullbacks. Those weak periods, however, were less frequent and also less dramatic, while recoveries were more pronounced, and bull markets persistently brought the market to fresh highs.

secularbull-82-2000Source: Ned Davis Research. Click on image to see a larger version.

Next week, we’ll look at how to invest during secular bull and bear markets.

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