Goldilocks should stick around in 2018

As disruptive as the geopolitical backdrop may have been, the environment for risk assets was constructive throughout 2017. Domestic equity markets repeatedly set new highs, credit sectors in the bond market chalked up gains and money markets saw yields climb to nine-year highs.

There are many reasons to expect these trends to continue this year, with a “just right” combination of accelerating global growth, robust earnings and moderate but continued monetary accommodation keeping the bears in hibernation.

What could wake them up? A big enough pickup in inflation to put the Federal Reserve on a faster rate-hike path. Unexpected outcomes in the Russian-meddling investigation or midterm elections that reverse the business-friendly tone in Washington. Something worse than just a staredown with North Korea. But at this juncture, we expect 2018 to be more alike to—than different from—2017.

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