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Global markets have done great so far in 2017. Are the gains sustainable?

With attractive returns such as haven’t been seen for quite a few years, investors in global stock markets have had a very good first half of 2017. Record levels for several widely-followed country indexes occurred in the context of notably muted volatility, adding to the sense of investor comfort and accomplishment. All of this was accompanied by tensions and transitions — some completed and others frustrated, at least for now — that will likely influence how investors feel at the end of the year.

Here are six key things you should know about recent developments, along with some important determinants of prospects for the remainder of the year:

A generalized global stock market rally: According to a Wall Street Journal analysis of the world’s 30 biggest stock markets by value, 26 registered gains in the first half of 2017 (the exceptions were Canada, China, Israel and Russia). At the global level, this delivered the best first-half performance since the immediate bounce back from the depth of the 2008-09 global financial crisis. Almost half of these 30 markets ended June at or near record highs.

Market leadership rotated with relatively diversified sector performance: Within the S&P, the largest market in the world, nine of 11 sectors delivered gains to investors. Yet dispersion was notable, both overall and within certain segments — notwithstanding a further shift to passive investing and the proliferation of index-based exchange-traded funds. Tech and health care led, with returns of 17 percent each; telecom lost 13 percent and energy 14 percent. Amazon surged while many traditional brick-and-mortar retailers languished. Despite a late gain that helped markets overall offset a June slump in tech, financials ended the six-month period only slightly above water. Meanwhile, size also mattered. The Dow and S&P gained 8 percent, along with 14 percent for the Nasdaq, while the Russell small cap benchmark lost about 5 percent.

Market drivers changed but the critical sustainability handoff remained elusive: Starting the year, markets were heavily influenced by hopes of a policy surge in the U.S. that would boost economic growth and corporate earnings in a sustainable and consequential fashion. But the political decision to try to push health care reform through Congress first put both tax reform and infrastructure in the back seat for now. As such, the surge in “soft data,” including in measures of corporate and household confidence, did not pull up more of the “hard data,” which remained sluggish. The potentially adverse impact on markets of delays in pro-growth policy implementation was offset by two other factors: Data pointing to a correlated global reflation (which, with time, seems to be proving more transitory); and continued injection of liquidity.

Forget economic and policy fundamentals, liquidity ruled: Liquidity injection was — once again — what mattered most for traders and investors in the first half of the year, offsetting not just economic and policy headwinds, but also geopolitical, institutional and political ones, too. And this ample liquidity came from three sources. First, record corporate profit levels, which translated into continued stock buybacks and higher dividend payments by companies, including dramatic announcements by banks last week after a green light from their regulator. Second, elevated inequality levels that continued to result in a significant portion of the incremental income generated in the economy accruing to wealthy households with a higher propensity to invest in financial markets. Third, the continuation of ultra-simulative central bank policies, including sizeable monthly asset purchases by the Bank of Japan and the European Central Bank.

Other markets signals suggest less confidence about economic fundamentals: Having traded in a range of almost 60 basis points during the first half of the year, yields on 10-year Treasuries ended at 2.30 percent, somewhat below their starting level of 2.44 percent. In the process, the yield differential versus German Bunds narrowed noticeably. Even more significant was the considerable flattening of the yield curve, usually an indicator of an upcoming economic slowdown. Meanwhile, the dollar gave up all, and more, of its post-election surge; and oil prices ended down around 14 percent as concerns over supply were hardly dented by any demand optimism.

And throughout all of this, the contrast between two key features of a liquidity rally intensified: Given the importance of liquidity — in determining not just returns but also in repressing volatility and in changing fundamentals-driven asset class correlations — markets ended the period in the midst of an intensified tug of war between crowded trades and “buy on dips” investor conditioning.

All of which sets up markets for an interesting remainder of the year, in which traders and investors will need to keep a close eye on:

The continued impact of liquidity, especially given that several systemically-important central banks (including the Bank of England, the ECB and the Federal Reserve) are likely to be navigating a careful reduction in their stimulus policies.

Progress in the handoff from liquidity to more sustainable validators of asset prices, particularly pro-growth policies in the U.S. and Europe.

The extent to which the spread to liquidity-inconsistent market segments of pooling vehicles, including high-yield and emerging-market ETFs, has overpromised readily available liquidity to traders and investors, thereby risking bouts of unsettling contagion.