Investors were optimistic enough as 2012 began. By February, the Dow closed above 13,000, the first time since May 2008, leading to predictions that the index could break the record of 14,164 set in 2007.
Many investors also were eager for the long-awaited initial public offering in May of Facebook. Critics claimed the initial price of $38 a share was too steep. Technical glitches plagued early trading the first day. And dozens of investors later sued Facebook, accusing it of disclosing unfavorable financial information in advance to certain analysts, but not to the public. Facebook maintains the lawsuits lack merit.
Instead of reigniting small investors' interest in stocks, the Facebook debacle cast doubt on the functioning of the market and lowered investor confidence, Carlson said.
The steep sell-off in U.S. stocks in May can't be blamed on Facebook, but on Europe. Concern grew that Spain or Italy might go the way of Greece, which has yet to right its fiscal house despite a massive bailout.
"There was a lot of fear that the Eurozone would break up," said Jeff Raupp, a senior investment manager at Brinker Capital in Pennsylvania.
And there was fear that Europe's troubles would spill over to the United States and further weaken the economy here, said Gary Thayer, chief macro strategist for Wells Fargo Advisors in St. Louis.
Over the summer, investor jitters subsided, helped by the European Central Bank's promise to do all that it can to defend the euro, Thayer said.
The Eurozone slipped back into a recession by the fall. Even so, the European stock index was up nearly 14 percent for the year, with Germany's market up 29 percent.
U.S. stocks traditionally post a better-than-average return during a presidential election year, but equities experienced a sharp drop in early November after President Barack Obama won re-election.
The sell-off would have occurred no matter who was elected, said Howard Silverblatt, senior index analyst with S&P Dow Jones Indices. Once the election was over, it became clear that the dreaded fiscal cliff could no longer be ignored, he said.
Throughout most of the post-election period, investors assumed that politicians in Washington would not throw the country over the fiscal cliff and ultimately back into a recession, experts said. But in the past week, it appeared that lawmakers would do just that.
"Everybody was very nervous over the weekend. We had that big sell-off on Friday," Thayer said. "A lot of people worried that Congress couldn't make a deal or wouldn't make a deal."
With signs that a deal is achievable, Thayer predicted the stock market will have another positive year in 2013, possibly rising by nearly 9 percent. He expects modest economic growth here, but points to other positives, such as consumers and businesses having less debt and foreign economies improving this year.
Others are less optimistic.
Silverblatt said that even if the worst of the fiscal cliff crisis has been avoided, the economy will still feel the impact of tax increases and spending cuts this year.
"Bottom line, we will have a difficult year ahead," Silverblatt said.