Secular

What Is Secular?

In finance, secular is a descriptive word used to allude to market activities that happen over the long term.

Secular can likewise point to explicit stocks or stock sectors unaffected by short-term trends. Secular trends are not occasional or cyclical. Instead, they stay consistent over the long haul.

Understanding Secular

Investors and analysts expect secular trends and secular stocks to stay moving in a similar direction over the long term, maintaining a static trajectory paying little mind to current economic conditions. While applying the term to the stock market, a secular market is the market's overall trend or direction for a long period of time. Further, secular trends might be vertically or descending in direction.

It is important for investors to identify secular trends in markets, not just short-term trends, to foster a long-term investment strategy. Instances of secular trends incorporate an aging population, which tends to have different spending and savings habits than a more youthful population, the expansion of a particular technology like the internet, the spotless energy movement, and the growth in impact investing.

Within the stock market, experts consider technology companies, for example, Netflix and Google parent Alphabet secular since short-term economic trends lastingly affect their long-term performance. David Kostin of Goldman Sachs, as reported by CNBC in March of 2018, thought of a list of the best secular growth stocks prime for investment. The short-list incorporates internet companies Amazon and Google's Alphabet as well as Domino's Pizza and Summit Materials. Goldman picked these companies since they developed sales by more than 10% over the three previous years and have robust and forward-looking potential.

A stock is secular when the associated company earnings stay constant paying little mind to other trends happening within the market. Companies are often secular when the primary business relates to consumer staples or products that most families consistently use. Consumer staples can incorporate personal care items, for example, cleanser and toilet paper, different food-item producers, and certain pharmaceutical companies.

Secular stocks are altogether different from cyclical stocks, which are securities whose price is impacted by the movement in the overall economy due to consumer buying power.

Special Considerations

Secular movements can continue in either a positive or negative direction. Therefore, the term doesn't generally mean growth. Investors might be secular bears or secular bulls.

Additionally, secular can allude to subtle or dramatic movements as the term doesn't identify the degree of progress. The principal attributes are the long-term nature of the movement and the lack of impact of short-term trends on associated activity.

In his book, Stocks for the Long Run (McGraw-Hill Education, 5th edition, 2014), Jeremy Siegel, an economics Ph.D., and finance teacher at the Wharton School, University of Pennsylvania, contends that equity securities-particularly U.S. equities-are secular and will probably outperform the other major asset classes secularly or over the long term.

In support of his argument, Siegel points to the 130 years between 1871 and 2001. During any rolling 30-year period within this timeframe, stocks outperformed any remaining asset classes, especially bonds and T-bills. Most experts concur that a 30-year period constitutes a secular trend.

While experts believe them to be long term, secular trends are not really permanent.

Highlights

• A secular trend or market is one that is probably going to continue moving in a similar general direction for the foreseeable future.
• Secular stocks incorporate technology firms, for example, Netflix and eCommerce leaders like Amazon.
• The secular movement of a long-term trend can be neutral (flat), positive, or negative in its direction.
• Secular alludes to market activities that unfurl throughout long time skylines, or that aren't impacted by short-term factors.