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A Perspective On Secular Bull And Bear Markets

Doug Short profile picture
Doug Short

By Jill Mislinski

Was the March 2009 low the end of a secular bear market and the beginning of a secular bull? At this point, nine years later, the S&P 500 has set a series of inflation-adjusted record highs based on monthly averages of daily closes.

Let's examine the past to broaden our understanding of the range of historical trends in market performance. An obvious feature of this inflation-adjusted series is the pattern of long-term alternations between uptrends and downtrends. Market historians call these "secular" bull and bear markets from the Latin word saeculum "long period of time" (in contrast to aeternus "eternal" - the type of bull market we fantasize about).

The key word on the chart above is secular. The implicit rule we're following is that blue shows secular trends that lead to new all-time real highs. Periods in between are secular bear markets, regardless of their cyclical rallies. For example, the rally from 1932 to 1937, despite its strength, remains a cycle in a secular bear market. At its peak in 1937, the index was 29% below the real all-time high of 1929. For a scholarly study of secular bear markets, which highlights the same key turning points, see Russell Napier's Anatomy of the Bear: Lessons from Wall Street's Four Great Bottoms.

An alternate view of secular trends is offered by Ed Easterling of Crestmont Research. See his fascinating study Understanding Secular Stock Market Cycles, which makes a persuasive case that we remain in a bear market that began in 2000. The underlying principle, in Easterling's view, is the price/earnings ratio, which remains lofty.

If we study the data underlying the chart, we can extract a number of interesting facts about these secular patterns (note that the table below includes the 1932-1937 rally):

Since that first trough

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Doug Short profile picture
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Comments (5)

Thank you for explaining what is "secular" mean! I have been google-searching to understand its meaning and found your article.
The regression line from 1877 to now seems misleading, making our current high appear excessive. Certainly, the economy post WWII is different enough from the earlier economy that a steeper regression curve starting from a lower point in the 1940's is justified. This would change the degree to which we are currently above trend. This wouldn't change your overall points, which are fascinating, and worrisome. But it would allow our current high look less like the top. Thanks for a great article.
Longlonebull profile picture
Summary- cycles can become shorter, probability 20% it will complete 10 year cycle 80% correction already started with the 10% dip in February. Individual stocks completely subject to fundamentals but are influenced by overall market. Buy and hold investors should consider reducing positions to offset trend reversal and also check how their individual stocks have performed since 2010 vs the index.
Disregard comment, now I see your reasoning. I've read Napier's excellent study. What we need now is a study of great tops.
I think the line from 1932 to 1937 on your graphs should be blue, not red. Nice posts.
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