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Dow at risk of first down year since 2008

Dow at risk of first down year since 2008

Barring a rally in the final days of trading in 2015, the up-and-down year on Wall Street has put the Dow Jones industrial average and S&P 500 at risk for their first year of negative returns since the financial crisis in 2008. Heading into Wednesday’s trading session and after back-to-back days of triple-digit gains, the Dow was down 2.3%  for the year, and the benchmark Standard & Poor’s 500 stock index was off 1.0%. In Wednesday trading, the S&P 500 was up 0.8% to 2056, just shy of its 2014 close of 2058.90. The Dow was also up, rising 0.7% to 17,544 as it moved closer to its 2014 close of 17,823.07.USA - Business - Dow Jones Sign

If both well-known U.S. stock gauges finish in the red this year, it will mark the first down calendar year for both indexes since the bull market began in 2009. The U.S. stock market’s last negative year was back in 2008, when the Dow plunged nearly 34% and the large-company S&P 500 cratered almost 39%. (The S&P 500 declined 0.04 points in 2011 but Wall Street deems that fractional loss a “flat” year.) Stocks have been hurt in 2015 by a string of headwinds that have caused the market to trade sideways. The frustrating year began with solid gains and record highs in May followed in August by the first 10% “correction” in four years to a market currently sporting modest losses with a week and a half to go in the year.

Wall Street stock strategists tracked by Bloomberg expect the S&P 500 to rebound next year, however. Based on 2016 projections released by 14 strategists, the average year-end 2016 price target for the S&P 500 is 2216, or up nearly 9% from Tuesday’s closing level of 2039. Market headwinds have been plentiful this year. Angst over the timing of the Federal Reserve’s first interest rate hike since 2006 (which finally came last week with a quarter point increase) began in March when Fed chair Janet Yellen first hinted that hikes in 2015 were coming. The summer swoon was sparked by fears of an economic collapse in Greece and exit from the eurozone, which was averted by a last-minute bailout. Add in the spring biotech stock plunge, the stock bust in mainland China in July, Beijing’s surprise devaluation of its currency in August, Turkey’s downing of a Russian fighter jet over Syria in November, terror attacks in Paris and California in late fall, and crashing oil prices — and it’s clear why investors haven’t been taking out second mortgages to buy U.S. stocks.

Wall Street is still digesting the impact of the Fed’s new rate hike cycle on future economic growth in the U.S., stock market valuations and the value of the dollar, which has strengthened in 2015, making U.S. multinationals less competitive. But heading into the week, when the Dow was down nearly 4% in 2015 and the S&P 500 was off 2.6%, the odds of the stock market finishing the year in positive territory were “low,” according to an analysis done by Edward Yardeni, chief investment strategist at Yardeni Research.