Equity markets are widely expected to do well this year after a stellar 2017. We share the optimism, but are monitoring multiple risks—from style patterns to inflationary pressures—that could deliver surprises as the year unfolds.

Global equities delivered powerful and consistent returns in 2017. The MSCI World Index surged by 18.5% in local-currency terms, adding $9 trillion to the market capitalization of global stocks. Both the MSCI World and S&P 500 indices posted positive gains in all 12 months of the year. US equity volatility sunk to the lowest level in a generation.

Will 2018 be as good? Possibly, as last year’s macroeconomic drivers of strong stock market returns remain in place. Yet it’s unlikely that the upward path will be as smooth, and the best areas to be invested in are likely to be different than in 2017.

Emerging-market stocks were the stars of 2017. They outperformed developed-market peers after several disappointing years (Display, left). Japanese stocks rebounded, while European equities trailed the developed world despite a revival of regional growth and receding political risk. US large-caps powered ahead, though smaller-caps lost steam after a strong 2016. Cyclicals and financials were the strongest performers (Display, right).

Currency moves made a big impact on equity returns. For example, European stocks (in euro terms) underperformed US large-cap stocks (in US-dollar terms). But the strengthening euro versus the US dollar in 2017 meant that in US-dollar terms, European stocks actually outperformed US equities.