AFTER a bumper year for financial markets in 2017, can 2018 be anything like as good? Much will depend on the global economy. The rally in stockmarkets stretches back almost two years, to the point when worries about an era of “secular stagnation” started to diminish.

The first pieces of economic data to be published in January—the purchasing managers’ indices (PMI) for the manufacturing sector—were pretty upbeat. In the euro zone the index recorded its highest level since the survey began in 1997. China’s PMI was stronger than expected, and America’s index showed new orders at their highest level in nearly 14 years.

The obvious question is whether the markets have anticipated the good news about growth, and pushed share prices to a level from which returns can only be disappointing. The cyclically adjusted price-earnings ratio of the American market, which uses a ten-year average of profits, is 32.4; it has been higher only in September 1929 (just before the Wall Street crash) and during the dotcom bubble.

A regular poll of global fund managers in December by Bank of America Merrill Lynch (BAML) found that a net 45% thought that equities are overvalued, the highest level in the more-than-20 years the survey has been conducted. But a net 48% of investors still have a higher exposure to stockmarkets than normal. The discrepancy can be explained by their attitude to the other highly liquid asset class: government bonds. A net 83% of managers think they are overvalued.

Given the very low level of bond yields (which fall as prices rise), it is hardly surprising that investors are chary about the asset category; a net 59% of managers have a lower weighting in bonds than normal. But partly because of the better news on the global economy, they are more hopeful about equities: stronger growth should mean higher profits. By the third quarter of this year, investors are expecting S&P 500 companies to show annual profits growth of 11.9%. Another factor is the American tax package just approved by Congress; the BAML survey found that more than 70% of fund managers thought tax cuts would cause shares to rise.

What was remarkable about 2017 was not just that stockmarkets rose. It was that they did so in such a steady manner. The MSCI World index rose in almost every month, and the volatility index, or Vix, stayed at remarkably low levels (see chart). None of the political headlines—the tensions between America and North Korea, the investigation into President Donald Trump’s election victory, the inconclusive German elections—seemed to bother investors for very long.

Politics could still sandbag the markets in 2018, particularly if another war broke out in Asia or the Middle East. But the more immediate concern for investors will be monetary policy. The Federal Reserve has been steadily pushing up interest rates, and the European Central Bank is reducing its monthly bond purchases. The combination of low rates and quantitative easing (QE) has been helpful for markets ever since the financial crisis. Like anxious parents, central banks are taking the training wheels off their children’s bicycles and hoping they won’t crash.

David Bowers and Ian Harnett of Absolute Strategy Research, a consultancy, have a different worry. They fear that investors may be caught out by a slowdown in China. In 2017 Chinese interest rates rose; this may start to have an economic impact in the current year. The effect will not be dramatic (they think global growth will slow to 3.3%) but it will be enough to disturb the rosy consensus.

Messrs Bowers and Harnett conduct their own survey of fund managers, and they find some inconsistencies in the outlook. Though investors expect equities to perform well, they are not enthusiastic about high-yield bonds. Normally conditions that are good for the former also boost the latter. And investors also expect the Vix to rise, an event that usually coincides with poor equity performance.

These contradictions can best be explained by assuming that investors are making the understandable bet that the current year will look much like the previous one. Extrapolating from the past is a well-known bias, and often applies to economic forecasts as well. But that is to ignore the nagging feeling that the events of 2016 may have marked a historic turning-point, and that the new era will be much more turbulent than before. To misquote Mr Micawber: “Something unpleasant will turn up.”