After 12 years of a liquidity-fueled, Fed-induced bull market, are the markets set to start another “secular” bear market? In an interview with the Financial Times, Boaz Weinstein, founder of Saba Capital Management, suggested such.
“There isn’t a rainbow at the end of all this. There’s no reason that this difficult economic period will only last two to three quarters and no reason to think we’ll have a soft landing or a shallow recession.”
Before you dismiss his opinion as hyperbole, Saba Capital was one of the world’s top-performing hedge funds in 2020 and is up by almost a third in 2022.
Before we go further with our analysis, we must distinguish between a cyclical and secular market cycle.
“A secular market trend is a long-term trend which lasts 5 to 25 years and consists of a series of primary trends. A secular bear market consists of smaller bull markets and larger bear markets; a secular bull market consists of larger bull markets and smaller bear markets.”
The prevailing trend in a “secular bull” market is “bullish” or upward-moving. In a “secular bear,” the market tends to trend sideways with severe drawdowns and sharp rallies.
The chart below shows the market from 1871 to the present, with secular bull market cycles highlighted.
Notably, as an investor, only 5-periods are secular bull markets (where prices are increasing) over the last 150 years. Those five periods account for 100% of all the index gains. In other words, the outcome was disappointing if you invested on a buy-and-hold basis during any other period.