Looking Back on the Markets in 2018 as Investors Prepare for 2019

The 2018 stock market was confusing. There's a way to come out on top in what could be a rough 2019.
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There's no way the stock market could have done in 2018 what it did in 2017, right? 

Wall Street had estimated in January that the 2018 market could do better than the historical annual average, a surprising stance for naysayers around Christmas time 2017. In 2017, the U.S. market soared 21%. That marked just below a decade of bull run -- the longest bull run in American history.

Fast forward to Christmas time 2018, and--after the market had run up 9% through September--stocks got absolutely shellacked. The U.S. markets will likely end in the red this year. When the markets closed on Friday Dec. 21, the Dow Jones Industrial Average lost more than 400 points. The S&P 500 lost more than 50 points. The Nasdaq Composite lost more than 200 points, putting the tech-heavy index at a 5% loss for the year. 

  • Not sure how to play the markets going into 2019? Follow TheStreet's Trading Strategies

Investors, remember that markets are forward looking. Although the third quarter saw 26% year over year earnings growth--and the fourth quarter saw just under that number--many economists are saying the chance of a recession is rising. Strong earnings haven't moved investors, who are pricing in a possibly rough 2019. 

Here's the point: defensive stocks, like consumer staples and utilities, could benefit investors in a rough economy, but seeing large gains will likely result from an active management strategy. Don't throw money into index ETF's anymore. Active managers will dig through the rough to find the best stocks, while most others move slowly or fall. 

The flattening yield curve is an indicator of a recession that is also causing investor sentiment to turn sour. Meanwhile, it's also possible that algorithms, which have there way with the stock market at times, could be impacting the Federal Reserve's rate hiking decisions. RealMoney's Kevin Curran has that story.