After a subdued 2016, the U.S. IPO market catapulted in 2017. The rise was credited to a surging stock market, improving economic fundamentals and increasing consumer sentiment that led to the appeal for new stocks with high growth potential.

According to Renaissance Capital, global IPOs have raised $141 billion so far in 2017, up 33% from 2016. The median deal size was $207.2 million in the year versus $185.9 million in 2016, though several big IPOs could not stock on to the debut prices and hurtled down eventually.

Overall, the year was decent with First Trust US Equity Opportunities ETF FPX and Renaissance IPO ETF IPO adding about 34.4% and 25.3% so far this year (as of Dec 20, 2017). Financial companies have been at the top spot in 2017 IPOs, making up about 21% of all proceeds.

Against this backdrop, we highlight a few reasons why 2018 could be a great year for IPO ETFs.

Improving U.S. Economy

The Fed has now forecast U.S. economic growth of 2.5% for 2017, up from 2.4% projected in the September meeting. The GDP guidance for 2018 was also beefed up from 2.1% to 2.5%. The PCE inflation guidance was upped to 1.7% by the end of this year, from 1.6% guided in September.

Trump Bump

Fed Activity

Though the Fed raised rates several times this year and may enact three more rate hikes in 2018, the tone of the Fed is not yet super hawkish. With Fed officials sticking to their outlook for three more rate hikes in 2018 despite speeding economic growth, there was no spark in the guidance issued in the December meeting.

So, the door is still open for investing in IPOs with borrowed money. On the other hand, if the Fed speeds up tightening, bond yields may go up considerably, which in turn will dull the appeal of debt financing and promote IPO. In fact, both ways IPOs should gain traction (read: ETF Winners & Losers Post Partly Dovish Fed Meet).

Unicorn Companies

Foreign Companies' Hot Spot in U.S.

Foreign companies eye United States as a hot spot for IPOs. "About a quarter of listings on U.S. exchanges in 2017 were by overseas firms, led by China," as per Reuters. Next year could be the same for the U.S. IPO market. Chinese smartphone maker Xiaomi may be up for a IPO next year, according to a recent Bloomberg report.