U.S. markets trimmed 2018 losses in a Monday rally, but it was not enough to prevent the worst yearly decline for stocks since 2008.
After setting a series of records through the late summer and early fall, major U.S. indexes fell sharply after early October, leaving them all in the red for the year.
The S&P 500 index, the market's main benchmark, finished the year with a loss of 6.2 percent. The last time the index fell for the year was in 2008 during the financial crisis. The S&P 500 also posted tiny losses in 2011 and 2015, but eked out small gains in both years once dividends were included.
The Dow Jones industrial average fell 5.6 percent. The Nasdaq composite sank 12.2 percent.
A year ago, Wall Street analysts predicted the S&P 500 would end 2018 at 2,893, on average, translating to an 8 percent gain. Instead, the benchmark index dropped 6 percent to finish just above 2,500. The almost 400-point miss is the biggest since the 2008 financial crisis.
Big misses when stocks fall are a predictable outcome for strategists, who since the start of the century have never forecast a down year in U.S. equities.
"It's not a particularly courageous prediction because when people are saying the market is going to be up 8 percent, they're basically saying it's going to be an average year," said Eric Kuby, chief investment officer who helps oversee $1.4 billion at North Star Investment Management in Chicago. "Looking back at 2018, it's anything but average. It's a very disappointing year."
Major indexes in Europe also ended 2018 in the red. The CAC 40 of France finished the year down 11 percent. Britain's FTSE 100 lost 12.5 percent. Germany's DAX ended the year in a bear market, down 22 percent from a high in January and 18 percent from the start of the year.
"This has really been a challenging year for investors," said Jeff Kravetz, regional investment strategist at U.S. Bank Wealth Management. "This was really the year that market volatility returned with a vengeance."
Wall Street analysts will remember 2018 for that return of volatility, which swept back into markets after a remarkably quiet 2017.
"While volatility pales compared to what it was during the recession of 2008-2009, we had gotten used to significantly lower volatility in 2017," said Howard Silverblatt of S&P Dow Jones Indices.
One measure of market volatility is the intraday swings in stock prices. In 2018 there were 110 market swings of 1 percent in the S&P 500, compared with 10 in 2017. That is still 35 percent below the annual average of 169 intraday market swings of 1 percent since 1962.
Wall Street started 2018 strong, buoyed by a growing economy and corporate profits. Stocks climbed to new highs early, shook off a sudden, steep drop by spring and rode a wave of tax cut-juiced corporate earnings growth to another all-time high by September. Then the jitters set in.
"The markets were troubled all year long and damaged by the trade war and by the apparent economic slowdown," said John Kilduff of Again Capital. Investors were also worried that higher interest rates would slow the economy, hurting corporate profits. A slowing U.S. housing market and forecasts of weaker global growth in 2019 also stoked traders' unease.
In October the market's gyrations grew more volatile.
The autumn sell-off knocked the benchmark S&P 500 index into a correction, or a drop of 10 percent from its all-time high, for the second time in nine months. A Christmas Eve plunge brought it briefly into bear market territory, or a drop of 20 percent from its peak, before closing just short of the threshold that would have meant the end of the market's nearly 10-year bull market run.
"For markets to move higher next year, we're going to have to resolve those issues," Kravetz said.
On Monday, the S&P 500 index rose 21.11 points, or 0.9 percent, to 2,506.85. The Dow gained 265.06 points, or 1.2 percent, to end the year at 23,327.46. The Nasdaq added 50.76 points, or 0.8 percent, to 6,635.28. The Russell 2000 index of smaller-company stocks picked up 10.64 points, or 0.8 percent, to 1,348.56.
Bond prices rose. The yield on the 10-year Treasury note fell to 2.68 percent from 2.73 percent late Friday. The yield started off the year at 2.41 percent.
Health care stocks paved the way for Monday's modest gains. The sector ended the year with a 4.7 percent increase to lead all other sectors in the S&P 500. Utilities were the only other sector to eke out an annual gain, adding 0.5 percent.
Technology companies, a big driver of the market's gains before things deteriorated in October, ended the year with a 1.6 percent loss. Three of the five so-called FAANG stocks -- Facebook, Amazon, Apple, Netflix and Google parent Alphabet -- ended 2018 lower. Amazon rose 28.4 percent, while Netflix jumped 39.4 percent.
Energy companies fared the worst, plunging 20.5 percent for the year, as the price of U.S. crude oil tumbled from a four-year peak of $76 a barrel in October.
On Monday, benchmark U.S. crude oil inched up 0.2 percent to settle at $45.41 a barrel in New York. Brent crude, the benchmark for international prices, gained 1.1 percent to $53.80 a barrel in London.
"The global equity markets need a strong Chinese economy, and it's faltering," said Again Capital's Kilduff. "That is weighing heavily on oil and will continue to weigh on stocks into the new year."
U.S. stocks and commodities markets will be closed today for New Year's Day.
Investors on Monday drew encouragement from a weekend tweet from President Donald Trump, in which the president said he had a "long and very good call" with Chinese President Xi Jinping. Trump added: "Deal is moving along very well. If made, it will be very comprehensive, covering all subjects, areas and points of dispute. Big progress being made."
Meanwhile, the official Xinhua News Agency cited a Chinese Foreign Ministry spokesman as saying that "China stands ready to work with the United States to move forward the China-U.S. ties which are underpinned by coordination, cooperation and stability."
Stocks also got a boost in early December when the U.S. and China agreed to a truce on trade, but then plunged when it was unclear what exactly both sides had agreed upon.
Information for this article was contributed by Alex Veiga of The Associated Press, Thomas Heath of The Washington Post and by Lu Wang of Bloomberg News.
Business on 01/01/2019