In finance, the term ‘secular’ describes market activities that take place over the long term. These patterns and movements stand largely independent of short-term fluctuations and cyclical trends.
Key Points to Remember
- Long-Term Perspectives: Secular trends refer to market activities that span long-term horizons, generally staying uninfluenced by short-term fluctuations.
- Definitive Direction: A secular market or trend moves consistently in a particular direction for a prolonged period.
- Stability vs. Cyclicality: Unlike cyclical trends influenced by economic swings, secular trends endure beyond boom-and-bust periods.
- Prominent Examples: Companies like Amazon and Alphabet’s Google are viewed as secular stocks, as their long-term growth remains stable despite short-term changes.
- Possible Trajectories: Secular movements can be neutral (flat), upward, or downward.
Understanding Secular
Investors keen on long-term growth pay special attention to secular trends and stocks—assets likely to maintain a steady direction regardless of current economic conditions. A secular market represents the stock market’s predominant trend or movement over extended periods, which can be either upward or downward.
Identifying such trends is vital for creating a solid long-term investment strategy. Notable secular trends include:
- An aging population influencing spending and savings habits
- The pervasive growth of internet technologies
- The rise of clean-energy solutions
- Expanding interest in impact investing
Examples of Secular Trends
Secular trends can be particularly observed in technology giants, deemed relatively immune to short-term economic shifts. For instance, Netflix and Alphabet maintain strong performance underpinned by secular growth. Secular stock picks extend beyond tech to include solid growth entities like Amazon, Domino’s Pizza, and Tesla.
These companies are prized for their continuing sales growth and robust long-term potential, desensitized to economic transitions. Similarly, industries like renewable energy (solar stocks) reveal consistent demand even amidst economic volatility.
How to Identify Secular Trends
Secular stocks exhibit consistent earnings despite other market variations. Generally, businesses that produce essential consumer staples or products—items continually in demand by households—fall into this category. Examples might include personal care products, the food and beverage sector, and various pharmaceuticals.
Consumer staples typically prove to be strong secular investments because their demand remains resilient during economic downturns.
Secular vs. Cyclical Trends
Understanding the clear demarcation between secular and cyclical stocks is pivotal. Cyclical stocks experience price swings aligned with economic activity, often industries relying on discretionary consumer spending. Examples like Starbucks and Nike show increased susceptibility to economic downturns, as consumers often cut non-essential spending during recessions.
Conversely, secular stocks maintain an enduring value unperturbed by the cyclical nature of economic shifts, typified by the durability of consumer staples and long-lasting tech advancements.
Special Considerations
It’s crucial to recognize that secular movements can be both positive and negative; the term itself doesn’t imply growth inherently. Investors can be secular bulls or bears depending on their long-term market bias.
Remember that ‘secular’ does not describe the extent of change but rather underscores the long-term effect direction and resilience to short-term variations.
Key Insights from Experts
Finance experts argue convincingly about the secular potential of equity securities. Investments in U.S. equities, for example, are heralded for their long-term performance, often outshining other asset classes such as bonds or treasury bills. Despite being long-term, secular trends aren’t labeled as permanent yet, showcasing sustained viability across decade-spanning periods.
Considering healthcare, secular trends might reflect long-standing patterns in disease activity unaffected by periodic or short-term factors.
Definitions of Terms for Reference
- Secular Headwinds: Long-term factors that decelerate or restrict growth during economic upswing cycles.
- Secular Tailwinds: Long-term factors conducive to accelerating growth beyond cyclic economic constraints.
Conclusion
In the world of investing, ‘secular’ epitomizes business and market trends that exhibit minimal dependence on broader economic cycles. Identifying such trends and stocks is fundamental to constructing resilient and lucrative long-term investment portfolios, diverging distinctly from cyclical stocks susceptible to economic ebbs and flows.
Related Terms: Market trends, Investment strategy, Cyclical stocks, Consumer staples, Economic conditions.
References
- CNBC. “Goldman: Not much upside left for the market here, but these ‘secular growth’ stocks should boom”.
- CNBC. “Jim Cramer Says to Own Secular Stocks, Approach Cyclical Names with Skepticism”.
- National Library of Medicine. “Medical Microbiology: 4th Edition. Chapter 9: Epidemiology”.
