'06 market review: A modest year for IPOs.

Byline: Drew DeSilver

Dec. 30--2006 was, by most measures, an exceptionally strong year for the U.S. stock markets. The Dow Jones industrial average smashed through its record high, set in January 2000, and kept rising. The Standard & Poor's 500 approached its record close. Even the tech-heavy Nasdaq, though still well shy of record territory, gained nearly 10 percent.

All this despite the fact that for much of the year, economy-watchers were fretting that the end of the housing boom would send the nation's economy into recession -- if the Federal Reserve's campaign of 17 straight interest-rate increases hadn't already done the job.

So why, if stock prices are supposed to reflect how investors think companies will fare in the future, did the markets have their best year since 2003?

"It all comes down to the Fed," said Ernest Ankrim, chief investment strategist at Russell Investment Group in Tacoma.

Once it became clear in August that the Fed had stopped raising rates, investors assumed inflation was under control and …