We continue to maintain a bullish long-term market outlook in spite of the current volatility. This isn't the first time emotional reactions have driven market sell-offs and it won't be the last time. Historically, markets react modestly to bad news but more severely when faced with uncertainty. People tend to have a similar extreme response to uncertainty. Fears about the coronavirus (COVID-19) spread have amplified with the forceful government measures specifically designed to help protect us.
It may get worse before it gets better, but that doesn't mean there isn't a light at the end of the tunnel. There will be news and economic data released in the coming months that will impact and possibly fuel volatility in the equity market. There will also be a variety of initiatives launched in attempt to stabilize the markets. Almost every government across the globe has promised to do everything in their power to stabilize financial markets and the global economy. Various fiscal and monetary stimulus plans globally, and particularly in the U.S., have been suggested and are on their way to being implemented. Over the past couple of weeks, a new round of credit programs and/or a monetary easing has been announced. Once the market has time to digest these measures, it is bound to respond positively.
However, we want to remind clients to have reasonable expectations as the markets will gyrate up and down as it receives bouts of mixed news. Moreover, the nature of the financial markets is such that after a panicked response, including a significant decline as we have seen, it normally goes through a bottoming process. Bottom formation usually includes markets retracing up about 40-50% of the decline and then retesting the lows before it assumes its way up to new highs. This means it is not going to be a straight line up even when we are past the worst. Twists and turns are part of the investing path. We remain focused on our destination and carefully navigating the best course to reach it.
Given current factors, our profit and performance expectations have been curtailed but we still anticipate double-digit gains in equity indices over the next 3-4 quarters from here given the government and monetary authorities' responses. Despite the fact that we expect severe deterioration in global economic activity over the next quarter, we anticipate economic activity, profitability of companies, and performance in equity indices to be better by the end of this year and to continue on a positive path into 2021.
The next few weeks or months are going to be very difficult for everyone, but we believe that free market capitalism and the American spirit will prevail as it always has. It is important as long-term investors not to overreact to short-term circumstances. A coronavirus recession may sound like a reason to sell, but it's not. We need to look forward with our investments, not backwards. Stocks typically begin to rise three to six months before a recovery. We believe we're already in that window and that stocks will begin to recover long before the pandemic effects begin to wane. The strongest bull markets are often not built on a foundation of good news, but rather on fading bad news.
Past performance is no guarantee of future results. GL348_e 03/24/20