The market turbulence that has pummelled Canadian stocks over the past two weeks is moving abroad, and strategists warn that wild days will define markets for some time.
Greece's main stock market index sank 13 per cent on Tuesday while borrowing costs surged, a stark reminder that Europe's sovereign debt crisis has not disappeared.
Even blue-chip European stocks fell 2.6 per cent for one of their worst one-day declines of the year.
In China, the Shanghai composite index fell 5.4 per cent, shattering a rally that had lifted stocks by about 50 per cent in recent months.
In the U.S., the S&P 500 fell as much as 26 points in early trading, but rebounded later in the day and closed down less than half a point, at 2,059.82.
Michael Hartnett, chief investment strategist at Bank of America, called it a "beast of a day" – but the turbulence helped him, and other strategists, hammer home the idea that 2015 will challenge the convictions of investors as the era of smooth rides and big returns winds down.
Central to this forecast is the expectation that the Federal Reserve will start to raise its key interest rate next year from ultra-low levels, removing a source of economic stimulus that has provided a powerful boost to stocks for more than five years.
"Why? The economy is picking up," Mr. Hartnett said in a conference call to discuss Bank of America's outlook. "It's that simple."
But markets can be jolted by surprises, underlining just how difficult it is to predict where markets are headed.
On Tuesday, Greek stocks were hit by news that the government is close to collapse and that an anti-austerity party could take power next year, reigniting concerns about the financial stability of the euro zone.
Chinese stocks fell the most in five years amid a flurry of concerns about an overextended stock market, a slowing economy and a troubled property market.
This time, Canada emerged without a bruising. The S&P/TSX composite index closed at 14,195.73, up 51.56 points or 0.4 per cent, helped by stable oil prices and rising gold.
If there is a theme among market strategists as they roll our their 2015 forecasts, it's that investors should be prepared for more volatility ahead.
"It's time to realize that the world might not be driven by quite as much momentum," said Peter Fisher, a senior director at BlackRock, the global asset manager.
He pointed out that it is unclear whether central banks in Europe and Japan will be able to offset shifting U.S. monetary policy with their own stimulus plans.
His colleague Russ Koesterich, BlackRock's global chief investment strategist, added that asset prices have moved well ahead of economic growth, which could lead to disappointment.
"Markets have been leading the economic recovery," he said. "But they have been very aggressive in discounting that recovery."
Stock valuations have surged, bond yields have fallen, credit spreads have tightened significantly and volatility has declined.
"As we go into 2015, the odds are that even if markets continue to go up, the path is unlikely to be as smooth as it has been in the last couple of years."
Still, no one is suggesting that investors should retreat from stocks, but rather check their tolerance for choppier markets – and perhaps prepare for them.
Savita Subramanian, Bank of America's head of U.S. equity and quantitative strategy, expects the S&P 500 will rise to 2,200 by the end of next year, implying a gain of about 7 per cent from Tuesday's close.
"We are still optimistic on U.S. equities, but a little less optimistic than we have been over the last couple of years," she said.
She believes that stocks are no longer cheap after the S&P 500's 200 per cent since 2009, but that stocks should continue to rise with earnings. As well, she points out that Wall Street strategists are growing more enthusiastic about stocks, suggesting that the bull market is aging.
In particular, she likes so-called quality stocks with stable earnings growth, especially large-cap stocks in sectors such as industrials and technology.
"When volatility is rising and risk aversion is building," she said, "you really want to look for companies that can deliver, rather than the high fliers and riskier stocks."