Secular Market Trends: Bull and Bear Markets

Bull Market vs. Bear Market

A bull market occurs when stocks are rising, the economy is expanding, and there is overall optimism towards market conditions. On the contrary, a bear market occurs when stock prices are falling, the economy is contracting, and there is overall pessimism towards market conditions. There are a handful of theories as to where the "bear" and "bull" names originated from for describing the stock market but the one that I find the most helpful is that they are derived from the way the animals attack their opponents. A bull thrusts its horns up in the air; a bear swipes its paws down.

Let's examine the past to broaden our understanding of the range of historical bull and bear market 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).

S&P Composite Secular Highs and Lows

The key word on the chart above is secular. The implicit rule we're following is that purple shows secular trends that lead to new all-time real highs. The red 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.

The S&P 500 real monthly averages of daily closes just reached a new all-time high in June 2024, surpassing its previous peak from November 2021.

S&P Composite Index Secular Trends

If we study the data underlying the chart, we can extract a number of interesting facts about these secular patterns:

S&P Composite Secular Patterns

Since that first trough in 1877 to the June 2024 high:

  • Secular bull gains totaled 2,218% for an average of 370%.
  • Secular bear losses totaled -283% for an average of -57%.
  • Secular bull years total 89 versus 58 for the bears.

This last bullet probably comes as a surprise to many people. The finance industry and media have conditioned us to view every dip as a buying opportunity. If we realize that bear markets have accounted for just under 40% of the highlighted time frame, we can better understand the two massive selloffs of the 21st century.