The first trading day of 2018 saw the S&P 500 and Dow Jones industrial average close at 2,695 and 24,824 respectively. US equity markets were reaching new heights, buoyed by a 2017 that inundated with an unending stream of positive data. The year also saw the passage of President Trump’s Tax Cuts and Jobs Act, which slashed business taxes and paved the way for a procession of stock buybacks in corporate America.

But what a difference a year can make.

The first trading day of 2019 brought more of the gloom that US traders have grown accustomed to over the latter part of 2018. The Dow lost 1.6% to settle at 23,345, and the S&P hit 2,472 following a 1.4% drop.

Though the difference between the 2018 and 2019 totals is hardly alarming in and of itself, especially when compared to the meteoric plunges of the Great Recession, they do appear indicative of a downward trend that’s likely to continue into 2019 and even beyond.

Forecast

Here are some of the broad economic headwinds that will drag on equity markets in 2019:

• US-China trade war. Whether the US-China trade war will be resolved in 2019 is difficult to assess with any confidence since it’s so dependent on the personalities that currently inhabit the White House. There are reasons to believe a breakthrough is imminent, such as rumored cuts in China’s imported vehicle tariffs (which would give President Trump a ‘win’ with which he could safely back down) and the impending US presidential election cycle, which will increase scrutiny on the costs and benefits of Trump’s China policy. There are also reasons for pessimism, mainly the intractable positions on both sides of the negotiating table and the simple fact that this could be the new normal in US-China relations, one that will outlive the Trump administration. Whatever the case, so long as the trade war is raging, the stock of US corporations with China sales exposure will be under pressure. These companies include Qualcomm, Intel, Texas Instruments, Apple, Microsoft, Caterpillar, McDonalds, Starbucks, Nike, Yum Brands, etc. On the flip side, should the trade war be suddenly resolved, these companies would receive a sudden and very significant boost in their stock valuation.