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A Market Recap for the Worst Week Since The 2007-2009 Financial Crisis

Dear Clients and Friends of ZWM,

First and foremost, I hope today finds you all safe and sound. For those of you who are hunkered down at home, I hope you are finding ways to stay productive, amused and to find family time. For our several clients that are healthcare workers, we appreciate your dedication and, indeed, bravery. Thank you!

Also, many thanks to all of you who have been reaching out to us to see how we are doing. That is so much appreciated. And, the answer is, in short, fine, considering the topsy-turvy world we now inhabit!

Today was a difficult day, to end the most difficult week since the Great Recession. The S&P 500 was down 4.33% today; down 14.98% this week alone; and is trading down 31.93% from its all-time high achieved in February, 2020. The more widely reported, but less relevant (because it is only 30 stocks, and omissions include Amazon, the largest retailer in the world) Dow Jones Industrial Average was down 4.54% today; down 17.30% this week; and is trading down 35.12% from its all-time high last month.

What does history tell us about such large declines?

Since 1926 (a commonly accepted beginning of the modern market era), US stocks have generally delivered strong returns over the 1-, 3- and 5-year periods following steep declines. The markets have to bottom first, but even drops of 51% (1937) and 57% (2007-2009) were followed by growth that brought us to new heights. I have every confidence this time will not be different. It is just a matter of how long the decline lasts, and how deep it takes us. And despite several pundits attempting to see the future, nobody knows the answers to those questions yet.

Here is a table illustrating my point:

Periods in which cumulative return from peak is -10%, -15%, or -20% or lower and where a recovery of 10%, 15%, or 20% from the trough has not yet occurred, are considered downturns. For the 10% threshold, there are 3,442 observations for 1-year look ahead, 3,396 observations for 3-year look ahead, and 3,345 observations for 5-year look ahead. For the 15% threshold, there are 3,175 observations for 1-year look ahead, 3,167 observations for 3-year look ahead, and 3,166 observations for 5-year look ahead. For the 20% threshold, there are 2,561 observations for 1-year look ahead, 2,560 observations for 3-year look ahead, and 2,560 observations for 5-year look ahead. 1-year, 3-year, and 5-year periods are overlapping periods. The bar chart shows the average returns for the 1-, 3-, and 5-year period following market declines.
Data provided by Fama/French, available at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

Our thanks to our friends at Dimensional Fund Advisors for sharing the table.

So for now, we will continue to monitor the situation closely and will continue to buy for clients with so-designated cash positions while the market is trading lower. As always, please feel free to reach out to us with any questions, comments or concerns.

Thank you for your trust, and please, stay safe!

All of us at ZWM,

Tom, Mona, Marshall, Dan and Eric
Zimmerman Wealth Management, LLC™

Trusted Fee-Only, Fiduciary Advisors Since 2003
Please note that ZWM cannot and does not give tax or legal advice. Nothing contained in this message shall be considered as such. Please consult your tax and legal advisers for any such advice and recommendations.