After a painful session yesterday, markets surged this morning. The Dow Jones Industrial Index, which closed below 19,000 yesterday, gained more than 2,000 points to close at 20,704.91. This was the Dow's fifth-best single day return on record. In context, here's the Dow's performance in 2020:

This market rally could be a "relief" rally, or a headfake rally, the proverbial "dead cat bounce", or genuinely the capitulation point that the bull market to come will be referenced against. Which is it?

Is this the Bottom?

There are basically two schools of thought. The first is that the worst-case COVID-19 fears have already been priced into this market. The lockdowns and social distancing pushes were overreactions to what is essentially a nasty form of the common cold. Once everyone gets back to work in a few weeks, the pent-up demand in the economy will lift Q2 earnings to all-time highs.

The second school of thought is that we have only just seen the beginning of COVID-19's effects on the market. Sending America back to work in two weeks would make the epidemic curve go vertical, causing hundreds of thousands if not a million extra deaths and the utter collapse of the healthcare system. That horrifying scenario would wreak further havoc on the market, which would be followed by a breakdown of the institutions that make modern life function.

The truth is probably somewhere between the pollyannish hope that everything will return to normal in a fortnight and the doomsday scenarios circulating on the internet. People will return to work, although likely not as soon as anyone would like, but the world will be very different when they get back.

We can break the possible resolutions to the COVID-19 crisis into roughly two groups:

A few months: likely the best-case scenario. Some combination of social distancing, isolation and treatment of extant cases, and summer rolling around in the Northern hemisphere sees COVID-19 fizzle out relatively quickly. After everyone records terrible Q1 results, the term "COVID-adjusted" reverberates around the financial world and capital markets return to something like normalcy.

A year or more: COVID-19 doesn't go away on its own, or it hangs around and keeps resurging every few months until a vaccine is developed, tested, proved, and implemented. Severe damage to global markets, as businesses small and large fail in too great of numbers for government bailouts to prevent.

Whichever scenario seems more compelling to you, it's important to keep the other in mind when making investment decisions. Before investing in a small-cap stock that you think will recover dramatically, ask yourself: how long can this name last, if things don't go back to normal quickly? Before ridding yourself of fiat currency and investing heavily in seeds, ask yourself: will I be okay if things get better?

More Pain More Gain

Some of the names that have suffered the most at the hands of the COVID-19 pandemic rallied the most today.

Boeing closed the day up 17%, on speculation of a bailout. Air Canada closed the day up 20%, on speculation of a bailout. Virgin Galactic, which can give you an idea of what airlines would look like if aviation had no commercial value and was just a risky luxury, is up 25%.

Of the banks we look at, it's the smallest of the group, National Bank, that rebounded the most today, gaining 19.6%.

Market Outlook

The strategy we're recommending that our clients adopt is simple and unexciting. We believe that there is likely value available in the equity market, although we're focusing on large-cap names with high quality earnings and high liquidity. We're particularly attracted to a portfolio of dividend-paying large-cap stocks that we've talked about before. 

We're also suggesting that clients tranche out their investments instead of picking a day and jumping in with both feet. By investing a fraction of available cash now, and another fraction next week, and so on, investors can spread out their investment over time. It's very unlikely that today is the bottom, but it's more likely that some time in the next four or five weeks is.

If you'd like to talk about these events or discuss your portfolio, don't hesitate to reach out to us at 604.643.0101.

Disclaimer: Canaccord Genuity Corp. is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and Canadian Investor Protection Fund (CIPF). The comments and opinions expressed in this commentary are solely the work of the Cash Management Group and Andrew Johns.