Trade war, big profits, wild swings: a look at 2018 markets

Wall Street started 2018 strong, buoyed by a growing economy and corporate profits. It didn't end that way.

U.S. stocks climbed to new highs in January, 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.

Investors grew worried that the testy U.S.-China trade dispute and higher interest rates would slow the economy, hurting corporate profits. A slowing U.S. housing market and forecasts of weaker global growth in 2019 stoked traders' unease.

In October the market entered a volatile skid as traders sold technology companies and other growth sectors in favor of less-risky assets, such as government bonds.

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. The index ended with its worst annual performance in a decade, losing 6.2 percent.

VIVA VOLATILITY

The stock market's gyrations grew more volatile in 2018 as investors faced uncertainty over trade and rising interest rates. The benchmark S&P 500 index slid into a "correction," or a drop of 10 percent from its high, twice this year. Bond yields surged as investors sought less risky investments, though gold weakened after rallying early in the year.

EVERYTHING STRUGGLED

"Diversify" is one of the bedrock tenets of investing, and it's supposed to shine brightest when markets are turbulent. The hope is that if U.S. stocks are struggling, markets in other areas of the world will be doing better. Or bonds. Or gold. This year, though, nearly everything has been a loser.

ECONOMIC HEADWINDS

The pace of global economic growth will slow next year, the Organization for Economic Cooperation and Development said recently. Trade growth and investment have been slackening on the back of tariff hikes, the Paris-based economic think tank says. It warns world economic activity could be weaker in the years ahead if the U.S. and China impose further penalties on each other's goods.

TRADE TREMORS

President Donald Trump said early this year that trade wars are good and "easy to win," but worries about the effect of tariffs on international trade — and corporate profits — have weighed on stocks. Boeing's stock became a proxy of sorts for investors as worries about trade waxed and waned. Boeing got more than half its revenue from abroad in the last year, including about 12 percent from China, according to FactSet.

PROFIT POWER

Corporate America's earnings growth surged in 2018, driven by lower tax bills and a growing economy. The strong results helped to briefly spur the stock market to new highs. More recently, investors have grown concerned that 2018 may be the peak for corporate profit growth, especially given recent signs that the global economy is slowing. That's one reason analysts are forecasting more modest earnings growth next year.

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Facebook and Alphabet, Google's parent company, were longtime market favorites until mid-2018. Facebook faced controversies related to user privacy and concerns its services enabled election meddling and contributed to violence overseas. Analysts projected a slowdown in user growth. Investors also began to wonder if Facebook, Google, Snap and other tech companies will face new regulations. Twitter fared better after several rough years

OIL SLICK

Falling oil prices used to be welcome news in the U.S., but that was before the oil boom of the last decade. A drop in oil can still mean lower gas prices for drivers. But this year's 40 percent plunge from a four-year peak of about $76 a barrel in October is unequivocally bad news for the oil companies that have helped domestic production roughly double over the past seven years.

NOT HOME

The U.S. housing market stalled in 2018 as years of prices climbing faster than incomes coupled with a steady rise in mortgage rates took their toll. The higher borrowing costs and prices have put homeownership out of reach for many would-be buyers. Sales of existing homes posted their biggest annual drop in four years in October. Economists are forecasting further weakness in housing next year and higher mortgage rates.

BIG AND SMALL

Smaller stocks surged this spring as trade tensions dominated the headlines. Investors believed those companies, which do less business overseas compared to larger companies, would feel less pain during a prolonged trade dispute. But smaller companies are also weaker financially and are more likely to struggle when the U.S. economy slows, and Wall Street grew very worried about that possibility later in the year. That caused huge losses.

HIGH, AND LOW, TIMES

A majority of U.S. states have legalized marijuana to varying degrees, and companies are scrambling to get in on the action. Both the NYSE and Nasdaq saw their first purely cannabis companies list shares in 2018. But stocks in the companies that produce and sell marijuana have largely underperformed the overall market this year.

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Markets Team members Greg Keller, Stan Choe, Marley Jay and Seth Sutel contributed to this report.

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