Dow shoots higher in early New Year's Eve trading, looks to end down year on up note - USA TODAY

Adam Shell USA TODAY

Published 9:40 AM EST Dec 31, 2018

Stocks look poised to close out their worst year since 2008 with gains on New Year's Eve amid signs of progress in trade talks between the U.S. and China.

In early trading, the Dow Jones Industrial Average, which starts the final day of 2018 down 6.7 percent for the year and 14 percent below its Oct. 3 all-time high, was up 200 points, or about 1 percent.

In a tweet over the weekend, President Donald Trump said he spoke with Chinese counterpart Xi Jinping about the trade dispute and that "Big progress was being made!" That news was greeted positively by investors, as slowing economic growth, due in part to tariffs and trade-related uncertainty, has weighed heavily on stocks in 2018.

The U.S. stock market, which has suffered its biggest December decline since 1931 and narrowly dodged its first bear market in almost 10 years, is on track for its worst annual performance since the financial crisis a decade ago.

Investors are bracing for more volatility but hoping for a return to gains in the new year.

"Barring an appearance of a 'black swan' event, or the shock of a bolt from the blue, the worst of the declines experienced by stocks in 2018 are behind us," John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, told clients early Monday in his 2019 outlook report. He predicts the broad U.S. stock market will rebound 20 percent next year from current levels.

Wall Street experienced highs and lows in 2018, with the broad Standard & Poor’s 500 stock market notching its longest bull run in history on its way to a record high in late September. But it morphed into a treacherous year for investors, as the stock market suffered two corrections – or drops of 10 percent or more from prior highs. The benchmark market gauge also came within two tenths of a percentage point of tumbling 20 percent from its peak on a closing basis and into bear market territory. That narrow miss kept the bull market, which began in March 2009, intact.

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Volatility returned to Wall Street with a vengeance in the final three months of the year, with stocks cratering under the weight of fears ranging from a looming recession to the Federal Reserve hiking interest rates too much, and from trade war uncertainties to signs of a global economic slowdown.

Investors who had been bidding up stock prices early in 2018 based on the strongest profit growth for U.S. companies since 2010, tailwinds from sizable tax cuts and a U.S. economy growing at a 3 percent-plus clip, sold stocks off sharply late in the year as they began to price in a less positive backdrop for stocks in coming quarters.

A sense that the best days for corporate profits and the global economy had already occurred resulted in investors repricing stocks at lower valuation levels.

Next year's market returns will hinge on whether the Federal Reserve avoids a policy mistake with its interest rate policy, whether the economy can continue to grow and avoid recession, and whether the U.S. trade fight with China can be resolved.

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