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‘It’s not surprising that we would have these kind of violent swings — maybe more violent than even we could have predicted,” said Lori Heinel, chief portfolio strategist at State Street Global Advisors
‘It’s not surprising that we would have these kind of violent swings — maybe more violent than even we could have predicted,” said Lori Heinel, chief portfolio strategist at State Street Global AdvisorsJonathan Wiggs/Globe Staff/Globe Staff

The Dow buzzed past 18,000 briefly last week. The economy boomed all summer and is expected to keep humming into the new year. And a trip to the gas station hurts your wallet less than it has in years.

For consumers and investors, these are suddenly glory days. That might be hard to grasp, after the long, slow climb out of the Great Recession. But today, American companies are earning record profits, inflation is low, and more people are landing jobs.

“I would like this business cycle to last a long time,” said James Swanson, chief investment strategist at MFS Investment Management. “The environment you’re looking at is one of the best in memory.”

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The catch for investors, of course, is that stocks have already come a long way in the extended bull market. Broad stock indexes have more than tripled since the market hit rock bottom March 9, 2009. The Standard & Poor’s 500 index has delivered double-digit gains in all but one year since then, and an average annual return of 17.5 percent over the last six years.

It’s hard to keep up that kind of pace, and market strategists are predicting more modest stock gains in 2015, in the mid-single digits. They see lots of positive economic signs to bolster that view, tempered by a few warning clouds.

The leading cause for optimism is the precipitous drop in oil prices, from $101 a barrel to just $55. Those prices were driven lower thanks to ample supply, not a drop in demand that would have hinted at a slower economy.

For consumers, cheaper oil means it costs less to drive cars and heat houses, leaving more money to spend on other things. Lower oil prices could even mean less expensive air travel and better prices on goods as companies save money on fuel.

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“That should be very good news for the vast majority of the United States,” said Ford O’Neil, manager of the Fidelity Total Bond Fund. “People are getting, in effect, a tax break. And it’s double so for those of us using oil in the Northeast.”

Another plus: While forecasters don’t expect the economy to keep up its brisk 5 percent growth rate of the summer, they believe it will continue at a healthy 3 percent annual pace. Inflation, now running at about 1.5 percent annually, shows no signs of accelerating significantly, several economists and professional investors said.

But the improving economy does raise the specter of higher interest rates. The Federal Reserve isn’t expected to act rashly to cool off a booming economy. Still, the central bank has hinted that it will start raising short-term interest rates slowly by mid-year — a year later than some had once anticipated — with unemployment at 5.8 percent and falling.

The end of the Fed’s massive stimulus programs and near-zero interest rate policy will force investors to face a key question. “Is the stock market sustainable in its own right?” asked Lori Heinel, chief portfolio strategist at State Street Global Advisors in Boston, the investment management arm of State Street Corp.

Heinel sees the market entering a period of mixed signals, in which otherwise healthy stocks could be affected by the Fed’s interest rate policy, and the upbeat US economy advances while Europe and Japan struggle. Shocks like oil’s dramatic drop and Russia’s currency crisis are a reminder that unpredictable events can spark volatility, she said.

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“It’s not surprising that we would have these kind of violent swings — maybe more violent than even we could have predicted,” Heinel said, referring to the sharp dive and bounce-back in stocks last month.

Christopher Wolfe, chief investment officer for Merrill Lynch’s private banking and investment group, agreed that volatility would probably be on the rise in 2015, driven by the Fed and global politics.

Worries about Europe, as well as Japan and potential slowing in China, make a steadier story in the United States look even more attractive, Wolfe said. “The balance of growth is still driven by the US,” he said.

Merrill Lynch’s top US stock sectors at the moment are technology and industrials. Fidelity is betting on software, biotechnology, real estate, and commercial construction.

Public companies are enjoying record profits, MFS’s Swanson said, and investing in their businesses. They’re also borrowing more, but corporate debt remains far below levels that helped get the economy into trouble in 2007 and 2008.

“The thing that kills us is abuse of credit,” Swanson said. “It’s on my worry list . . . what’s amazing about this business cycle is we are getting retail spending from the consumer and business profitability, without people leveraging up their balance sheets.”

If the economy stays on its current course, wages are eventually likely to rise. That would be welcome news among workers, but not necessarily on Wall Street. Looking further down the road, perhaps into 2016, higher wages could spur the Fed to raise interest rates more aggressively, which could in turn slow the economy down.

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“The issue for stock owners is wages, wages, wages,” Swanson said. “That’s the number one thing I’m watching.”


Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.