I am really coming to grips with my 2018 outlook, and I find myself wrestling with the implications of slowing growth on the economy and, in particular, the markets. The fundamentals have been strong, with good earnings growth driving the markets up. The other major factor has been confidence, both business and consumer, which (despite everything) has been rising. Typically, rising confidence drives stock market multiples higher—and that is exactly what has happened this year. So, the great market results we’re seeing have been the result of a double whammy: improving fundamentals as confidence and valuations rise.

Looking into 2018, however, growth is likely to slow for a variety of reasons. This, in turn, should slow earnings growth, which is already reflected in the estimates. What will the effect be on confidence and valuations? That will be the wild card in trying to figure out what markets are likely to do.

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