The United States emerged from 2014 as the best house on a troubled block. Internationally, a civil war in Ukraine, slowing Chinese economy, stagnant Europe worried about potential deflation, new recession in Japan, threat of a new Russian economic meltdown triggered by plummeting oil prices--it all made an improving situation in the US look brighter by comparison.

 

Even apart from the troubles overseas, the United States -- by almost any measure -- was stronger than it’s been in years.

The labor and housing markets improved, oil prices declined, corporate profits were solid, Congress managed to avert another government shutdown and the Ebola threat had little impact domestically.

 

Many of the biggest US surprises were positive: US interest rates continued to decline, oil prices fell and the economy continued to expand without the benefit of the Federal Reserve’s Quantitative Easing program.

 

It was a Goldilocks economy: not too hot, which could have brought on higher interest rates from the Federal Reserve, and not too cold, which let the Fed end the QE3 bond purchases begun in the wake of the 2008 financial crisis.

 

That domestic strength fueled more gains for domestic equities than had been envisioned for the fifth year of this bull market. For instance, the S&P 500 increased 14%.

 

It was a different story for international stocks. The EAFE (Europe, Australasia, Far East) Index declined 5% for the year. This was partly the result of a strengthening US dollar.

 

The 10-year return figures in the table are worth a look. The last 10 years included the largest US stock market decline since the Great Depression. In spite of the terrible losses in 2007-2009, broad US stock indexes average 8 to 9% per year for the 10-year period, outperforming the bond market, CDs, Money Market funds, etc. by large amounts.

 

What does this mean for 2015? Well, nothing. Past performance is no guarantee of future performance. Many predictions about 2014 (higher interests rates and poor or negative stock returns) were wrong, so why listen to the predictions now?

 

However, in the coming year, investors may finally be faced with the start of long anticipated interest rate increases. Though the Fed has promised patience in implementing rate hikes, higher borrowing costs and a strong dollar that makes U.S. goods more expensive overseas could create a headwind for domestic corporations. Will that blow the economy off its current promising course or will merely keep the game interesting? Only time will tell.