2018: The worst year for stocks since financial crisis

Global trade spats, rising interest rates and Brexit uncertainty have helped most stock indices to their worst year in a decade. Recession fears for 2019 could mean more significant drops, especially for tech stocks.

Major US stock indices had their worst annual performance in 2018 since the beginning of the financial crisis, despite making small gains on Monday — the last trading day of the year.

The main benchmark S&P 500 index finished the year down 6 percent, the Dow Jones Industrial Average dropped 5.6 percent, and the Nasdaq composite slid nearly 4 percent. The anemic report card, however, came just four months after Wall Street marked the longest-ever bull market, following a decade of ultra-loose monetary policy.

Major indices in Europe also ended 2018 in the red, including Germany's DAX which entered bear market territory, down 22 percent from its high in January and 18 percent from the start of the year. The CAC 40 of France finished the year down 11 percent, while Britain's FTSE 100 lost 12.5 percent.

China weakens, other Asian markets follow

Most Asian markets also lost ground in 2018; the region's stocks saw $5 trillion (4.35 trillion) wiped off their value. Major indices in Shanghai and Shenzhen saw annual losses of 25 and 33 percent respectively, partly as a result of a slowdown in the Chinese economy, but a bitter trade conflict with the US exacerbated the drop. The Hong Kong Stock Exchange, meanwhile, ended the year nearly 14 percent lower.

Wall Street started 2018 strong, buoyed by a growing economy and corporate profits, and received a further boost when US President Donald Trump introduced a series of tax cuts. But a sudden market drop in the spring and further jitters in September and October saw investors become more cautious.

"Stock markets have been on a wild ride this year and the United States has been at the center," Oanda analyst Craig Erlam told the Agence France-Presse (AFP) news agency.

However "the trade war with China and skirmishes elsewhere had weighed heavily on the relevant domestic markets which has dented investor sentiment."

Can trade war be averted?

Washington and Beijing imposed tit-for-tat tariffs on more than $300 billion worth of goods earlier this year but in December agreed a 90-day truce, and investors have since welcomed conciliatory signals from both sides.

The Federal Reserve's decision to further hike interest rates amid concerns of an economic slowdown prompted backlash from Trump, who blamed the Fed for the market volatility.

But several other factors helped turn markets cautious in the second half, including a 40-percent plunge in oil prices, the US government shutdown, and fears about the outlook for tech stocks like Apple, Facebook and Google.

In Europe, Italy's fiscal woes and the uncertain nature of Britain's looming exit from the European Union in March 2019, all weighed on investors' minds.

Several market strategists are now forecasting another turbulent year for stocks in 2019, and potentially one of the most challenging years for investors since the bull market began.

"2018 has been characterized by a shift from low volatility, high liquidity and expectations of equity out-performance to high volatility, low liquidity and the return of a bear market in equities," VTB Capital economist Neil MacKinnon told AFP.

"For 2019, a global economic slowdown — perhaps recession — looks increasingly likely," he warned.