Definition: A secular trend is a variable that evidences a consistent pattern within a given period of time. It is a statistical tendency that can be easily identified and it is not subject to seasonal or cyclical effects.
What Does Secular Trend Mean?
Statistically speaking, these trends can be identified over time and this creates the opportunity to develop accurate forecasts and behavior predictions. In the financial and economic fields, secular trends can be identified in variables such as gross domestic product, inflation, stock prices, stock indexes and other key indicators that are normally studied by technical analysts to develop forecasts that allow investors to decide whether it is a good time to buy or sell a given security.
On the other hand, companies analyzing their sales figures by district, product or type of client can identify secular trends that will help them develop more accurate forecasts. To be considered as such, technical analysts assign the category of secular to patterns that are consistent within at least 10 to 30 years. This is different for cyclical stocks that are more volatile and tend to shift direction many times during that same period.
Example
James Markfield is a Senior Economist at Major Bank of London. He is in charge of analyzing new investment opportunities at emerging markets in order to make suggestions to the Chief Investment Officer to expand the company’s investment portfolio. He is currently analyzing Australia as a viable option, since it has proven to be a stable market during the past 20 years.
The country shows a secular trend in elements like gross domestic product and corporate profits, which is a very desirable scenario for Major Bank. According to Markfield, the best opportunity lies in the mid-size corporate market where companies have experience a 10-year consecutive growth, which according to the Bank’s standards can be analyzed as a sustainable and predictable pattern for future behavior.
