Stocks closed out 2017 with their first-ever “perfect year,” with each month recording successive gains (Business Insider, A Record Year for the S&P 500 Index, 12/29/17). Since the US Presidential elections, markets have experienced 14 back-to-back monthly gains, the most since 1995. The S&P 500 US Large-Cap Index (‘SPY’ ETF Proxy*) posted a total return of +21.7%, its largest since 2013 and ninth positive year in a row. Overseas, a falling US Dollar further supported the EAFE International Stock Index (EFA*) finishing +25.1% higher, and the MSCI Emerging Market Index (EEM*) up +37.3%.

One of the many worries for 2017 had been the advent of monetary tightening by the Federal Open Market Committee (FOMC). In the end, there were three interbank lending increases leaving the maximum rate at 1.5%, and yet the Barclay’s Aggregate Bond Index (AGG*) was still able to proceed higher by +3.5%. High Yield Bonds (HYG*) also recorded gains of +6.1%. Finally, alternative asset classes posted positive performances, with Global Real Estate (RWO*) up +7.8%, and Commodities (DBC*) staging a late comeback to finish the year +4.9% higher.

A strengthening global economy was the bedrock of the year’s excellent performances. The US completed 102 continuous months of economic expansion, its second longest streak ever (Economist, America’s Long-Running Economic Expansion, 12/16/17). Mid-year forward the pace picked up considerably, exceeding +3% annualized Gross Domestic Product (GDP) figures (Bureau of Economic Analysis, National Income and Product Accounts, 12/21/17). Nevertheless, inflation was surprisingly low, featuring a final Core Consumer Price Inflation reading of just +1.8% (Bureau of Labor Statistics, CPI Summary, 1/12/18).

The acceleration of growth was even more impressive in the face of several severe natural disasters besetting our coastal regions. And again, as robust as the US environment was, the European economy performed even better. Many analysists now expect this trend to continue several years out for an extended era of synchronized global growth (Reuters, World Stock Rally Rolls On, 1/8/18).

There is no telling how long this stable, low-volatility environment will persist. What we know at this moment, is that economic fundamentals are highly supportive of global growth, inflation remains low, stock earnings have rebounded and are predicted to continue to expand this year, and the passage of a historic corporate tax cut bill should provide tremendous policy support towards that end. Though investors should remain diversified and be prepared for an eventual uptick in volatility, it would be rare indeed for anything more than a run-of-the-mill correction to occur against such a backdrop.

*Dividend-adjusted proxy ETP data from Commodity Systems, Inc. as of December 31, 2017.