Secular bull markets: characteristics and tips for identification

Markets are made up of millions of participants with different goals and timeframes. Some investors have short-term goals, while others have a more long-term view. This clash between short-term and long-term thinking is often the crux of many investing arguments, but it also provides a good example. Secular bull markets are not affected by missed profits or bad economic relations; long-term sustainable factors drive them. In this article we will discuss the differences between cyclical and secular bull markets and how investors should approach them.

Identifying the characteristics of a secular bull market

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

Multi-year run

Secular bull markets are characterized by their prolonged duration, often taking years or even decades to develop. Some of the longest secular bull markets in U.S. history include the bull run of the 1980s and 1990s, which saw long-term stock price appreciation despite several short-term declines such as the collapse of Long Term Capital Management and Black Monday in 1987.

Growth across sectors and asset classes

Sometimes, bull markets are driven by a particular niche, such as artificial intelligence, cryptocurrency, or the financial sector. However, a secular bull market features broad growth across multiple stock sectors and asset classes. Not every sector or asset will participate, but the broader the rally, the more likely a secular bull run will be.

High investor optimism

Investor sentiment plays a major role in bull and bear markets. As secular bull markets follow one another, this sentiment can reach fever pitch as enthusiastic investors pour more and more capital into stocks. Cautious optimism is often a feature of cyclical bull runs; investors are more exuberant during secular rallies.

Fundamental and economic tailwinds

A secular bull market is sustained over time, so promising underlying data is usually needed. Some economic and business trends fueling secular bulls include rising corporate profits, GDP expansion, 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 rapidly. Here are some time-tested strategies for investors.

Diversification

Never invest all your money in one hot stock or sector. Since secular bull markets are broad rallies, a diversified portfolio will still deliver quality returns, and you’ll even sleep better at night knowing your capital is allocated across a basket of companies.

Long and short term thinking

Investors should have both short-term and long-term plans. Even if you’re investing for retirement, which could last 20-30 years, 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 often means letting your emotions run your portfolio, and emotional investing leads to mistakes.

Manage risk

Even when markets are optimistic, it is still necessary to use risk management strategies to prevent catastrophic losses. Never invest in a way that allows a correction or bear market to ruin your portfolio as avoiding every withdrawal is impossible if you spend enough time in the market.

Secular bull markets vs. cyclical trends

Market cycles come and go, and it is critical to differentiate cyclical bull markets from secular ones. Cyclical bull and bear runs often occur within the broader context of a secular bull market, which is more concerned with the long-term trend than daily swings in stock prices.

For example, the bull market following the Great Financial Crisis of 2009 had numerous events that gave investors whiplash. Corrections followed sudden crashes in 2011, 2016, and 2018, but the primary trend continued upward until the COVID-19 pandemic altered long-term market factors. Market cycles come and go, but beating back a secular bull requires a more substantial shock.

Navigating the future of investing

Secular bull markets are a huge portfolio boost for long-term investors. Stocks don’t always produce consistent returns, so participating in secular bull runs is critical to building wealth. But even the most robust economies eventually collapse, and stocks never rise forever. Avoid complacency and always stay informed about market trends. Think long term, adjust your portfolio as needed, and always consult an advisor before making 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 understanding why you own the stocks you own.

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