Graphic: Consumers fueling the machine

Equity markets in 2017 were defined by outsized valuations coupled with low volatility, despite the year's extreme weather, natural disasters, terrorist attacks and high-profile political posturing.
Volatility drops: The average 90-day volatility of the S&P 500 index in 2017 was 7.4, much lower than the previous two years. Also of note was the low dispersion of volatility, which operated in a tight band relative to the mean.
P/E, EPS up: How much higher can equities go? The price-to-earnings ratio of the S&P 500 was up 7 percentage points in 2017. The earnings per share of the index rose 12 percentage points after two years of declines, giving some validity to higher valuations.
Sustainable? Consumers spent $13.6 trillion in the 12 months ended Nov. 30. Year-over-year spending growth has outpaced income growth since 2016.
Debt climbs: With little slowing consumer spending to date, what happens when it stops? Market volatility may return when investors lose confidence in earnings.
Sources: Bloomberg LP, Federal Reserve Bank of St. Louis