US markets were on pace to trim 2018 losses in a Monday rally, but not enough to prevent the worst yearly decline for stocks since 2008.
All three major indexes were tracking to finish 2018 in the red during the finale of a tumultuous year. The Jones Industrial Average and the S&P 500 were headed toward annual declines of around 6 per cent each. The tech-heavy Nasdaq Composite was trading more than 4 per cent in negative territory on the year.
Monday's early gains came as reports surfaced that the Trump administration and China were making progress on trade talks. But the surge faded during afternoon hours as a broad set of concerns remain, including a grim manufacturing report out of China, slowing global economic growth, rising US interest rates and a troubling decline in oil prices.
"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. "That was reinforced last night with Chinese manufacturing numbers showing a contraction."
China's manufacturing sector contracted for the first time in two and a half years in December, according to a Chinese government report released Monday.
The China slowdown may be tied to the Trump trade war. The result is a waning outlook for the global economy.
December has been a rough month for markets, with all three indices down 9 per cent as the Federal Reserve continued to tighten money supply with a quarter increase in interest rates.
Nine out of 11 US sectors were in negative territory coming into Monday's session. The energy and materials sectors were leading the way downward. Energy companies have been hobbled by a 25 per cent decline in oil prices in 2018 due to a supply glut.
Only two sectors - healthcare and utilities - were positive on the year.
"The global equity markets need a strong Chinese economy, and it's faltering," Kilduff said. "That is weighing heavily on oil and will continue to weigh on stocks into the new year."
Wall Street analysts will remember 2018 for the 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 intra-day swings in stock prices. By that measure, 2018 saw 110 market swings of 1 per cent in the S&P compared to only 10 in 2017. That is still 35 per cent below the average of 169 intraday market swings of 1 per cent since 1962 through the present.
The year began with a steep February sell-off when Trump signalled his intent to impose tariffs on goods from solar panels to washing machines imported into the United States.
The market eventually adjusted to Trump's tweets and trade threats, aided by strong corporate earnings and a tax cut. Stocks pushed toward record highs by early autumn.
The market then reversed over the last three months as Federal Reserve Chairman Jerome Powell said the central bank had embarked on a series of increases to normalize interest rates.
The three-month slide included a dramatic drop in the so-called FAANG stocks - Facebook, Amazon, Apple, Netflix and Google parent Alphabet - and culminated in the worst Christmas Eve market crash in history.
The Christmas Eve crash came on the heels of phone calls from Treasury Secretary Steven Mnuchin to major US banks. Instead of calming markets, the unorthodox phone calls worried investors and the Dow dropped 653 points, or just under 3 per cent.
When markets opened Dec. 26th, the Nasdaq lay deep in bear market territory and the S&P was close behind. Bear markets are generally measured as a 20 per cent retreat from recent highs. All three indices had descended into a correction, which is a 10 per cent decline.
The Dow on Dec. 26 staged a 1,086 point rally, its biggest point gain in history, as the volatility resumed.
Sam Stovall of CFRA said people should get used to the turbulence.
"The volatility is back to normal," said Stovall, CFRA's chief investment strategist. "We got spoiled in 2017. Interest rates remained relatively low, economic growth was strong and investors were buying stocks in anticipation of the late, 2017 tax cut."
The economy is expected to finish 2018 with around a 3 per cent annual growth rate, which some economists did not think possible. The expected growth rate in 2019 is anywhere from 2 to 2.5 per cent.