Stock market expectations: follow the secular cycle

Most people are relying on the stock market to provide for their retirement and other long term goals. However, the stock market has been nothing but disappointing for most people over the past decade. To be a successful investor, one important key is to understand the current secular cycle.  

Secular market cycles are generally defined as a long-term trend in which a particular asset class or sub-class is trending upward (bull) or downward (bear).  Within the prevailing secular trend there are short-term bull and bear market actions called cyclical cycles. Secular bulls have the higher number and more acute level of cyclical bull markets while secular bear markets have a higher number and more acute level of cyclical bear cycles.

Below is a graph showing the secular trends in the U.S. stock market since 1900. Over this time period we've had nine secular periods with four secular bull markets and five secular bear markets. Currently we are within a secular bear cycle that began in the early part of 2001. (Click the graph to enlarge it.)

Click to enlarge

Graph Copyright ©2012,

Secular cycles usually last from five to 20 years. If the secular bear market follows the historical norm, we are looking at a reversal in the latter part of this decade. Secular bear markets tend to begin when a particular asset class is excessively overpriced from a historical perspective and is usually coupled with some tipping point where a change in geopolitical and/or economic climate usually does not support the asset class in question. For example, our current secular bear market began with stock values at historical highs and since then we've experienced several recessions, sovereign debt concerns and an arguable lack of political leadership. Secular bull markets tend to begin when a particular asset class is excessively underpriced from a historical perspective with a tipping point where change in geopolitical and/or economic climate is usually positive to the asset class involved. Our last secular bull market started in 1981 when stock prices were at historically low valuations and was followed by a period of political stability, deregulation and technological innovation during which inflation was tamed and the Cold War came to an end.

Why is understanding the secular cycle so important? It's because certain strategies can be effective in one secular cycle and be less effective in another. In my next blog posting I will discuss what to expect and how to invest in difficult market environments like the one we are currently experiencing.

The information in this blog is intended to be general in nature and should not be construed as personalized individual advice. Each individual has their own set of unique goals and circumstances and with that, financial strategies that may be suitable for one person may not be suitable for another. The reader should seek personalized advice from an expert prior to taking any specific action to determine if it is appropriate for their needs.

Jeff Bogue is an independent, fee-only financial planner with his firm, Bogue Asset Management LLC, serving individuals, families and small business owners nationwide since 1997 with offices in Wells and Portland, Maine. Jeff has been a Certified Financial Planning Practitioner since 1997 and has been quoted on personal financial matters in the Wall Street Journal, Consumer Reports, Consumer Reports Money Advisor,  Kiplinger’s Personal Finance,, The Portland Press Herald, AARP Magazine, Registered, Fidelity Stages Magazine, AOL Money & Finance, MSN/, Investment Advisor Magazine, Financial Planning Magazine and Financial Advisor Magazine. He is an active member of the National Association of Personal Financial Advisors, the Financial Planning Association and the Maine Estate Planning Council.