A record year for the S&P 500: The index finished 2017 with 12 months of gains

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Reuters / Brendan McDermid

  • The S&P 500 finished 2017 with 12 months of gains.
  • That has never happened before.
  • Earnings growth was strong, all 45 economies under the Organisation for Economic Cooperation and Development were expanding, and investors started to price in the effect of the new US tax law.
  • Some analysts expect 2018 to be more volatile.

What a year.

For the first time, the S&P 500 ended every single month of a calendar year with a gain.

It came very close three times: in 1958, 1995, and 2006, when it had 11 “up” months. The worst year was 1974, when it was positive in only one month.

There was no shortage of news this year – from the threat of nuclear war to unending warnings that the stocks are too expensive – to deter the bull market.

Yet here we are. In February, the S&P 500 was already trading at 2,364, the average point that Wall Street analysts had forecast for year-end.

It closed at 2,673.63 on Thursday, a 19.4% gain this year. That was the highest since 2011.

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LPL Financial

It wasn’t only the US stock market that had an impressive year. Almost every major equity index will finish positive for 2017. That’s unsurprising, given that for the first time in a decade, all 45 economies in the Organisation for Economic Cooperation and Development were growing.

US companies, especially in the energy sector, pulled further away from an earnings recession that lasted from the second quarter of 2015 through Q3 2016. They’re now on track for the best year of earnings-per-share growth since 2011.

And then there’s US President Donald Trump, who has repeatedly taken credit for the rally.

Though it isn’t 100% his – for all the reasons listed above and because the bull market was going seven years strong before his election – the prospect of tax cuts boosted investor sentiment. For some time, it supported the highly taxed companies that would benefit the most. Many analysts have forecast that it will be an earnings booster in 2018.

Some of them also think the best of this party is over. Morgan Stanley, for example, is still bullish but predicts that next year won’t be as easy. As stocks hit ever-increasing highs, Cboe’s volatility index plummeted to a historic low.

“After a very painful slide in volatility for many traders looking for a rise the past several years, we have finally reached a point where betting on higher volatility will pay off,” Mike Wilson, the chief US equity strategist at Morgan Stanley, said in a recent note.