The Difference between Cyclical Seasonal and Secular Markets

There are thousands of people with the job of trying to understand and predict the stock market. One of the keys to understanding this is understanding the difference between secular markets, seasonal markets and cyclical markets because if you know what type of market you have can help you predict which way the market is going to go. The problem is that while these markets are very different they can look very similar. Before you can understand what type of market you are in though you need to understand the concept behind each of these markets.

A secular market is a market that is driven by outside forces often for a number of years. These markets can be either bull or bear. For example a war that causes a long term bear market would be a secular market. Similarly the positive effects of open trade, such as the effects of the European Union could cause a long term secular bull market.  The primary definition of this market is one that is affected by outside forces¹.

A cyclical market can look similar to a secular market, but it is caused by forces that are more directly controlled by the market and are a more natural ebb and flow. The most common form of this is in large industry in which you have heavy demand for some product for a period and then as the amount of people who have that product demand drops for a time until that product has be used or worn down and then demand picks up again². 

The third of these is a seasonal market.  This is a yearly trend that can be judged over entire markets but is far more difficult to predict on specific stocks. This is a change in stock value based on the change is seasons. At its most basic this trend says that stocks tend to go down in value after the middle of summer until about December. They then tend to go up in value between December and the middle of summer³.

The differences between these are largely differences of the cause of a market change. The most important question when considering investment in a market is whether the current market is caused by secular trends meaning that the market will change only when those pressures change or are seasonal or cyclical which means that they will change naturally on their own even if the current worldwide situation largely remains the same.