In many ways 2017 was one of the most surprising years in recent memory. Back in January there were few optimists around. After all, the economic expansion and bull market had gone on for almost nine years, making it one of the longest on record, and all good things come to an end sometime. Investors were worried that a hard landing in China would result from the huge build-up in debt there, a large portion of which was believed to be non-performing. The decision by the United Kingdom to leave the European Union made many investors nervous about the ability of the alliance to continue. Perhaps most important, investors didn’t know what impact a Donald Trump presidency would have on the financial markets or the world economy.

The year turned out better than almost everyone expected. Real growth finally reached 3% in the United States both in the second and third quarters after being mired in the 2% range since the recession. Inflation remained below 2% as measured by the Consumer Price Index and the ten-year U.S. Treasury yield stayed below 2.5%, while unemployment dropped to 4.1% and looked like it was headed into the 3% range. To be sure, average hourly earnings were increasing by only 2.5%. Nonetheless, household net worth reached an all-time high and so did the Standard & Poor’s 500. The mood in Washington shifted to pro-business, leading to expectations of less regulation and lower taxes. China continued to grow at an impressive rate, and Europe and Japan were doing well. We all worried about a military conflict with North Korea and continued fighting in the Middle East, but on the whole it was a very good year.

Every year I prepare a list of Ten Surprises that I believe have a greater than 50% probability of happening, but which the average professional would only assign a 33% chance of taking place. This is the 33rd edition of The Surprises, which began in 1986 when I was a strategist at Morgan Stanley. The idea derived from my realization that my best investment ideas were generally non-consensus observations that turned out to be right. The Surprises are designed to stretch my own thinking (and hopefully yours) about the outlook for the year ahead. I don’t prepare the list to achieve a high score. Usually I get five or six of the Surprises more or less on target. I’ve had a number of years when I achieved seven, and one (2009) when the score was nine right.

Every year in my January essay I review the previous year and list the Ten Surprises for the year ahead. In my first Surprise for 2017 I said that Donald Trump would move away from many of the extreme positions he took during his campaign for the presidency. He didn’t tear up the Affordable Care Act on his first day in office, but allowed modified parts of it to be and incorporated into the tax bill. The NAFTA Trade agreement is under negotiation rather than being trashed. He didn’t denounce China as currency manipulator during his recent trip there; he complimented the Chinese leaders on their negotiating skills. Generally he has found that extreme positions may appeal to voters, but they are hard to implement in the real world.

In my second Surprise, I said that the Trump administration’s pro-growth policies of cutting taxes, dismantling regulation and spending money on infrastructure would result in 3% growth in the United States and that is where we are in spite of the administration having passed only the controversial tax bill during its first year in office. A number of regulations have, however, been eliminated. My optimism on S&P earnings and the performance of the equity market was borne out, validating the third Surprise. Earnings will come in well ahead of my $130 estimate and the market exceeded my S&P 500 target of 2500.