If you look at the chart of DJIA below and the adverse events - from 2018/19 GFC, to 2011 European sovereign debt contagion to 2015 concerns over China's economy to 2018 Fed rates about turn to Aug 19 yield curve inversion to Feb 2020 COVID crisis, there are a few things you can draw from:
1) Once a negative event has passed or deemed resolved by the markets, coupled with a northbound trajectory, we have never seen another major market correction following one in short period of time
2) But since 2018, and during Trump's tenure, market volatility has been great due to uncertainties around Trump's confrontational and unorthodox policies
3) The susceptibility of the markets to sharper downdrafts has increased notably since 2018
And this is why I think , subject to Trump not doing the unthinkable, the US markets are primed to put aside the difficulties of 2020 and forge forward ahead. Apart from the vaccine, the end of Trump's bipolarity, the spectre of large stimulus (either fiscal or monetary or both) coupled with low interest rates until at least 2022 and recovery of business profits arising from pent up demand and prospect of continued ISO speculation post-COVID as WFH becomes a new norm makes it more likely that markets will go higher than go lower.
The counter argument to this would be the prospect of a W economic recovery meaning the global economy plunges into a double dip recession, a greater prospect no doubt if US and Europe do not undertake or continue to suffer political gridlock to unleash the required recovery stimulus. If that were to happen in the US, you can almost blame it entirely on the Republican Senate and DJT because they could be doing everything to make Biden fail. The second risk is that we are not over yet in the pandemic crisis despite the vaccine and so a protracted crisis would cause global economy to sink again. These scenarios are controllable if we have global efforts and coordination and a resolve - which is why a Biden administration is important because it gives hope to look at the big picture facing the nation and the world, and not solely through the lens of a self-interest individual who is only interested in his own political agenda.
And of course we have the pessimistic camp that highlight the lofty valuation of the current US markets - this is true in 2019 as it was in 2020 and possibly as it would be in 2021. But as long as politics do not make it unfriendly for businesses to prosper and importantly interest rates do not rise and there remains massive liquidity to support asset inflation, valuation fundamentals would unlikely at least in the short to medium term to be a primary concern to negate interest in equities. If it was, APT should not be at $100 and Tesla not where it is at now. Lofty valuations usually become a good reason for market selloff after an overextended rally that is somehow brought to an end by a catalyst event. It rarely is the main primer for a market selloff -like one day, people wake up and reads that Buffetts Market Cap/GDP ratio hits another record and then begins to sell off.
