2018 was the stock market’s worst year since the financial crisis.
Investors blamed the decline on worries over slower earnings growth, the trade war, Fed policy, the U.S. economy, the health of U.S. corporations, the global economy, the U.S. housing market, among other factors pressuring markets.
In a note to clients published Wednesday, Bank of America Merrill Lynch economists confirmed this idea, writing that there was “no single major cause for financial tightening.”
BAML’s work showed that the biggest factor contributing to the market’s decline, however, was clearly trade.
“Until recently, trade was the biggest drag on the equity market during the correction,” the firm writes. “Trade protectionism has been the most important headwind to US equities since the start of last year, taking 4.4% off the S&P 500. In fact, our analysis suggests the index would not have finished last year in the red had it not been for fears of a trade war.”
So for any investors out there that underperformed in 2018, this chart from Bank of America offers a new metric that might bail you out — trade-adjusted performance.
BAML adds that their work “probably understate the negative impact of the trade war because they only account only for its direct effect on equities.”
Warnings about the global economy — most notably China — from Apple (AAPL) and Samsung in recent days back up the idea that overall market performance belies the actual stresses trade fights are having on the global economy. This also explains why we continue to see the market quick to embrace any positive news about trade. And why Trump keeps tweeting about how well trade talks with China are going.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland