This year has been a wild ride for investors, featuring the most ups and downs that the stock market has seen in quite some time. There have been plenty of reasons for that, and investors have had to get used to some new conditions that they haven't dealt with for quite a while.

In particular, we'll remember 2018 for five key factors that shaped the investing climate. Tax reform had a huge impact near the beginning of the year on corporate earnings, creating a large upswing. Yet rising trade tensions worldwide, especially between the United States and China, weighed on investors' minds, and the Federal Reserve's interest rate policies also caused some consternation. The resulting volatility ratcheted up the level of discomfort and many wondered if the long-tenured bull market would be coming to a close. Meanwhile, many investors shifted their allegiance away from cryptocurrency-based businesses toward the rapidly growing marijuana sector.

Let's look at each of these year-defining themes in more detail.

Person jumping over an ocean at sunset between two cliffs, one with numbers 2018 and the other with 2019.

Image source: Getty Images.

1. Tax reform brings a market boom -- and bust

The Tax Cuts and Jobs Act was one of the biggest legislative accomplishments of 2017, having passed under the wire last December so that it could take effect on Jan. 1, 2018. The most important provision of tax reform for businesses was the cut in the corporate tax rate from 35% to 21%. That immediately brought huge benefits to any company that expected to owe taxes in the future, and the flexibility prompted many corporations to green-light billions of dollars' worth of stock buybacks.

For multinational companies, tax cuts did come at a price. The new rules forced the immediate recognition of overseas profits that companies had previously been able to defer taxes on indefinitely, and that forced some companies to absorb massive one-time charges. Investors focused on the long-term benefits, however, and even those companies that had substantial overseas profit should still see net savings over time.

Stocks soared early in the year on the earnings growth that tax reform fueled. Yet recently, the realization that those tax-based gains will make it harder for companies to match rapid growth rates from 2018 have played a role in the market's volatility, and some worry that slower growth in 2019 will prompt further declines.

2. The ebb and flow of U.S.-China trade relations

Trade has been a major issue for the U.S. since the beginning of the Trump administration. In 2018, what many viewed as rhetoric escalated into aggressive action, with the White House imposing tariffs on steel and aluminum in the early spring that provided exemptions for only a small number of countries. That affected key trading partners in North America and Europe, as well as nations such as China, whose policies have historically been less aligned with the wishes of U.S. trade officials.

The relationship with China proved to be particularly turbulent during the year. On several occasions, President Trump gave Chinese officials a reprieve on imposing tariffs, only to reinstate or even expand their coverage. The U.S. and China went on to exchange several rounds of escalating tariffs, eventually affecting hundreds of billions of dollars in goods.

Recent talks between Chinese leader Xi Jinping and President Trump following the G-20 summit in Argentina led to a brief 90-day pause in the budding trade war. Yet many are skeptical that enough progress will be made before the early 2019 deadline to prevent the risk of new tariffs. With many U.S. companies already reporting negative impacts on their earnings stemming from higher costs due to the trade restrictions, the market could see further downward pressure from trade tensions in 2019.

3. The Fed's stance on monetary policy

It was a strong year for the U.S. economy, and the Federal Reserve responded to improving economic conditions by making regular increases in the short-term interest rates that it controls. Boosts of a quarter percentage point in March, June, September, and December brought the current range for the federal funds rate to between 2.25% and 2.5%. The latest hike marked the ninth move for the central bank since late 2015; rates had been in a range of 0% to 0.25% for seven years prior to that in the aftermath of the financial crisis.

Investors have had mixed feelings about the central bank's monetary policy moves this year. On one hand, the Fed's ability pull back on the extraordinary measures it took to protect the financial system in the late 2000s and early 2010s is a necessary step in the recovery, and although the market reaction has been predictably negative, the Fed's actions have thus far avoided an outright crash. Yet at the same time, even in the face of plunging unemployment and robust growth, some fear that the Fed is too quick to try to get things back to normal.

The Fed didn't succumb to that pressure when it raised rates for a fourth time this year. However, the central bank did signal after that Dec. 19 meeting that it expects to issue fewer increases in 2019, now predicting only two rate hikes, and lowered its outlook for economic growth in the new year. In its statement, the Fed said it will "continue to monitor global economic and financial developments and assess their implications." 

4. Volatility's back!

Historically, stock market corrections have been common events, with pullbacks of 10% or more coming roughly once a year. That wasn't the case during much of the mid-2010s, though, and it lulled investors into a false sense of security. During 2018 the market moved a little closer to normal conditions, with 10% corrections coming in both the opening months of the year and again in October and December.

What's been particularly surprising for many investors is that even the top stocks in the market have experienced some big moves. Popular technology stocks, many of which had shot upward for years, proved just as susceptible to the gravity of the market's downward shift as any. Meanwhile, companies that were susceptible to pressure from the changes in tax reform or trade this year also tended to suffer. For instance, many multinationals rely on global trade as part of their supply chain solutions to support their worldwide manufacturing capacity. With the threat of tariffs, sometimes costly adjustments to supply chains became necessary, hurting profits, and creating uncertainty for the future. Worries about a global slowdown caused oil prices to dip as well, hampering a key sector of the stock market.

Given all the unknowns in key areas including macroeconomic conditions, geopolitical events, and industry-specific trends, the volatility that appeared this year is likely to continue. Investors appear to be seriously considering the potential for an imminent bear market for the first time in years, and it could be well into 2019 before we know whether that will be the case.

5. Crypto fizzles and marijuana soars 

One interesting storyline during 2018 was the transition from one highly hyped investment area to another. At the start of the year, everyone was talking about cryptocurrencies, as the price of bitcoin rocketed to briefly reach $20,000 and its trajectory helped carry a host of lesser-known crypto tokens upward as well.

It didn't take long before investors reversed course on bitcoin and its peers. As has often happened in the cryptocurrency markets in the past, massive percentage drops in token prices took shape throughout the year. Despite several attempts to consolidate and bounce higher, bitcoin was unable to recover, and by December, prices were in the low $3,000s -- down more than 80% from all-time highs just months earlier.

As interest in cryptocurrency faded, the rise of marijuana stocks took bitcoin's place in the minds of momentum investors. When Canadian lawmakers announced that the long-awaited legalization of recreational cannabis for adult use would take effect in mid-October, investors flooded the Canadian marijuana producers that would be responsible for supplying the needs of this new market. At the same time, interest in related businesses also rose. For instance, shares of companies that specialize in cannabis-infused beverages rose sharply, as did stocks of businesses that provide incidental support to marijuana production, including real estate and retail distribution specialists.

But even booming marijuana stocks proved to be volatile. The rollout of Canadian cannabis to the recreational market hasn't gone as smoothly as many had hoped, and it'll take time for sales from Canada to work their way into the financial statements of the biggest companies in the business. That led to a big pullback from the monumental gains that cannabis stocks had posted during the months prior. Nevertheless, activity in the marijuana mergers and acquisitions arena has been healthy, with a move from tobacco king Altria to buy a large stake in Cronos Group being the latest partnership between a well-established mainstream consumer products giant and an up-and-coming cannabis company. Investors can expect 2019 to be an interesting one for the marijuana industry as well, especially as the trends toward legalization continue to move forward.

What to expect for 2019

No two years in the stock market are identical, and the most important themes can differ greatly. Investors can expect trade and interest rates to remain key factors in driving markets next year, however, and it will be interesting to see whether tax policy remains relatively calm after the recent big changes. Volatility seems to be here to stay, but the direction that the market's volatility will take is more unpredictable than ever. And as marijuana stocks start to gain acceptance among ordinary investors, it is anyone's guess what the next investing fad might be -- or how best to profit from it.

One thing's certain, though: 2019 promises to be an interesting year for the financial markets. Investors will need to stay on their toes and keep their eyes open for the new global events and trends that will define the stock market's direction over the course of the coming year.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.