Weight-of-the-Evidence Secular Trend Model
Combine price trends, valuation, and fundamentals to identify secular regimes
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 95%
This model identifies secular market regimes by combining several independent forms of evidence rather than relying on one breakout date or valuation measure. Start with a century-scale real or nominal total-return chart, estimate its central trend, and compare the current market slope with earlier secular bull and bear periods. Then inspect valuation, including CAPE and its relationship with forward returns, and measure how far prices sit above or below their long-term trend. Finally, seek fundamental confirmation such as falling inflation, earnings improvement, or a structural change in policy. A market low may mark the probable start of a regime, while a later breakout confirms it. The output is a contextual regime judgment that guides expectations without pretending to provide an exact timing signal.
Origin
Extracted from Masters in Business, where Jurrien Timmer explained why he dates the current secular bull market to 2009 while treating the 2013 breakout as confirmation.
Core principles
- 01Treat regime identification as probabilistic, not exact
- 02Use independent indicators to seek confirmation
- 03Separate a trend's beginning from its later confirmation
- 04Compare current slopes with prior secular regimes
- 05Let long-term context prevent reactive market timing
How to run it
- 1
Establish the long-term trend
Plot real and nominal total returns over a century or more and fit a central regression trend. Use this baseline to distinguish ordinary fluctuations from major secular departures.
Pro tip Use logarithmic scaling so long periods and compounding rates remain comparable.
Watch out A short chart can make a cyclical move look secular.
- 2
Compare regime slopes
Measure the current period's compounded slope and compare it with prior secular bull and bear markets. Similar slopes provide historical context rather than certainty.
Pro tip Compare multiple prior regimes instead of selecting only the closest-looking episode.
Watch out The historical sample contains very few secular regimes.
- 3
Test valuation evidence
Compare CAPE or another normalized valuation measure with long-term forward-return patterns. Treat valuation as an expectation-setting input, not a near-term timing trigger.
Pro tip Focus on ten-year prospective returns rather than the next one or two years.
Watch out High valuation can persist while momentum and earnings continue to support prices.
- 4
Measure deviation from trend
Calculate how far the market sits above or below its long-term real-return trend. Compare that deviation with historical secular peaks and troughs.
Pro tip Use broad ranges because the boundaries are not exact.
Watch out Do not declare a regime from deviation alone.
- 5
Seek fundamental confirmation
Look for structural changes in inflation, earnings, monetary policy, productivity, or equity supply and demand that support the chart evidence. Independent confirmation strengthens the regime judgment.
Pro tip Ask what changed economically around the suspected turning point.
Watch out A compelling narrative without price confirmation is insufficient.
- 6
Separate start from confirmation
Record the probable turning point and the later event that confirms the trend, such as a breakout above an old high. This prevents confirmation from being mistaken for inception.
Pro tip Maintain confidence ranges rather than a single supposedly exact date.
Watch out Waiting for confirmation may sacrifice some upside but reduces false-regime risk.
In the wild
Timmer treats 2009 as the start because the market accelerated after a decade of sideways movement, valuation evidence resembled earlier secular troughs, and prices were deeply below the long-term real-return trend. He treats the 2013 breakout above the previous high as confirmation rather than the beginning.
→ The model preserves the early turning point while acknowledging the later technical confirmation.
An investor could watch for an extreme positive deviation from trend, weaker prospective CAPE returns, rising bond yields, and a loss of fundamental support. Agreement among those indicators would justify lowering long-term equity-return expectations without requiring an immediate bear-market forecast.
→ Strategic expectations adjust before the investor makes an unsupported all-or-nothing market call.
Common mistakes
Using one indicator
A breakout, valuation ratio, or historical analogy alone cannot reliably identify a secular regime. The method depends on agreement across multiple independent indicators.
Demanding an exact start date
Secular turning points are interpretations drawn from small historical samples. Treat the initial date as a probabilistic judgment and later breakouts as confirmation.
Using valuation as a short-term timer
Valuation is informative about long-horizon returns but says little about the next year or two. Expensive markets can continue rising during strong trends.
Is it for you?
Best for
It is best for long-horizon investors making strategic allocation and return-expectation decisions.
Not ideal for
It is not ideal for precise short-term entries, exits, or mechanical trading signals.
From the transcript
“So I look at like the weight of the evidence from a multitude of indicators, and again it's it's not an exact science.”
“So the thirteen for me is not the start, but it's confirmation.”
“But it shows you how powerful that context can be to just look at those different time frames and see where they are, because it…”
From the episode
'Barbell' Investing Strategies With Jurrien Timmer
Jurrien Timmer