What Is Secular?

What Is Secular?

Let me explain what 'secular' means in finance. It's a term we use to describe market activities that play out over the long haul, not just in the short term.

You can also think of secular as pointing to specific stocks or entire sectors that don't get swayed by fleeting trends. These aren't about seasons or cycles; they stay steady over time.

Understanding Secular

As investors and analysts, we look at secular trends and stocks expecting them to keep heading in the same direction for years, no matter what the economy throws at them. In the stock market, a secular market means the big-picture trend over a long period, and it could go up or down.

You need to spot these secular trends, not just the quick ones, if you're building a strategy for the long term. Think about things like an aging population changing how people spend and save, or the rise of the internet, clean energy, or impact investing—these are classic examples.

Examples of Secular

In the stock world, companies like Netflix and Alphabet (Google's parent) are seen as secular because short-term economic dips don't hit their long-term game much.

Back in March 2018, Goldman Sachs' David Kostin highlighted some top secular growth stocks, as reported by CNBC. His list included Amazon, Alphabet, Domino's Pizza, and Summit Materials—these had grown sales by over 10% in the prior three years and looked strong going forward.

You'll often hear about Apple and Amazon too, since their businesses aren't tied tightly to economic cycles. Others like Deere, Tesla, Devon Energy, and even solar companies fit because demand holds up even in tough times.

How to Identify Secular Trends

A stock counts as secular if the company's earnings stay solid no matter what else is happening in the market. Often, these are tied to consumer staples—things households always need, like shampoo, toilet paper, food producers, or certain pharma firms.

Remember, if revenues are likely to hold steady through market ups and downs, it's a secular play. Consumer staples are a prime example; people keep buying them even in recessions.

Secular vs. Cyclical

Secular stocks stand apart from cyclical ones, which rise and fall with the economy based on consumer spending power. Cyclical companies suffer when the economy tanks.

These cyclical stocks rely on discretionary spending that drops in recessions—think Starbucks or Nike, where people cut back on non-essentials when cash is tight.

Special Considerations

Secular movements can go positive or negative, so don't assume it always means growth. You could be a secular bull or bear.

The term covers subtle shifts or big ones; what matters is it's long-term and ignores short-term noise. Experts say these trends aren't necessarily forever, even if they're long-lasting.

In his book 'Stocks for the Long Run' (5th edition, 2014), Jeremy Siegel from Wharton argues that U.S. equities are secular outperformers over other assets like bonds. He backs it with data from 1871 to 2001, where stocks beat everything in any 30-year rolling period, which most agree qualifies as secular.

What Are Secular Trends in Healthcare?

Shifting gears, in healthcare, secular trends mean disease patterns over many years, influenced by things like population immunity but not by seasons or periodic factors.

What Does Secular Headwinds Mean?

In finance, headwinds slow growth. A secular headwind is a long-term force that dampens market expansion even during business cycle upswings.

What Does Secular Tailwinds Mean?

Tailwinds speed things up. A secular tailwind is a long-term economic trend that boosts market growth, unlike cyclical limits.

The Bottom Line

To wrap it up, in investing, secular means business trends that don't correlate much with the business cycle. A secular stock holds its value through recessions, while cyclical ones ride the economic waves.