Wall Street ends worst year since 2008 financial crisis

The dour performance, which undercuts one of President Trump’s favorite economic talking points during his first year in the White House, reflects concern about Federal Reserve interest rate hikes, fallout from tariffs the administration has posed on allies and rivals alike, and speculation that growth will slow in 2019.

“We know the economy is likely to slow because you have the waning effects of tax cuts, you have the impact of higher rates already, and you have trade friction,” said Fred Cannon, director of research at New York brokerage Keefe, Bruyette & Woods. Still, “the Fed and most people looking at the U.S. economy don’t believe it’s going to fall into a recession.”

The central bank has raised short-term interest rates nine times, to a range of 2.25 percent to 2.5 percent, since cutting them to nearly zero during the financial crisis. The last 25 basis-point increase, occurring the week before Christmas, dragged markets lower and prompted bitter criticism of Fed Chariman Jerome Powell from Trump, who appointed him to succeed Janet Yellen.

[Read more: Wall Street closes out worst week in a decade]

Indeed, the president’s musings about whether he could fire Powell injected further volatility into the markets, which rely on the central bank’s independent management of the U.S. economy.

“Tension between the Fed and the president is obvious,” said David Bianco, Americas chief investment officer for New York-based wealth-management firm DWS. “This is not a first for the Fed,” he added, noting market frustration with the Christmas hike. “The Fed must make the right decision for the economy, not its credibility or autonomy.”

Along with interest rates, corporate executives and economists will pay close attention during the coming year to trade policy, given Trump’s threats to add tariffs to another $267 billion in Chinese imports. The president vows to add the tariffs unless he’s able to strike a deal with Beijing that addresses a trade imbalance and Chinese theft of U.S. intellectual property.

The White House has already imposed duties on $250 billion of Chinese goods, driving up supply costs for U.S. businesses, as well as double-digit levies on steel and aluminum. Trump has also threatened tariffs on imports of automobiles and parts.

“We see slowing across the board, and we think tariffs are driving much of that slowdown,” said Rob Martin, an economist with the Swiss lender UBS.

Trump, however, injected a note of optimism into the tariff debate over the weekend, asserting that negotiations with China are going well despite skepticism about the truce he worked out with President Xi Jinping during a meeting in Buenos Aires in early December.

“Just had a long and very good call with President Xi of China,” Trump posted on Twitter on Saturday. “Deal moving along very well. If made, it will be very comprehensive.”