Stocks Log Best Year-End Rally Ever!

Santa delivered his rally just in time for the ball drop — and with a bang!

The Dow Jones Industrial Average jumped another 108 points Wednesday, adding to the 184-point gain logged on Tuesday, making it the best two-day end-of-year rally EVER. The record was 115.83, set in 1997.

In percentage terms, the Dow gained 3.5 percent in the past two sessions, while the S&P 500 added 3.8 percent and the Nasdaq turned in the best performance, gaining 4.4 percent.

Major U.S. Indexes

	Last	MTD % Change	QTD % Change	YTD % Change
Dow	8776.39	-0.60%	-19.12%	-33.84%
NASDAQ	1577.03	2.70%	-24.61%	-40.54%
S&P 500	903.25	0.78%	-22.56%	-38.49%
Russell 2000	499.38	5.55%	-26.52%	-34.81%
CBOE VIX	39.81	-27.98%	1.07%	76.93%

The optimism, it seems, was largely due to the government's efforts in recent days to stop the bleeding, with the Federal Reserve announcing plans to buy $500 billion in mortgage-backed securities by mid-2009, and the Treasury Department pumping $6 billion into General Motors' GMAC financing arm.

It was a nice cap to a dismal year, in which all three major indexes lost more than a third of their value.

For the Dow and S&P, 2008 was their worst annual performance since 1931. For the Nasdaq, 2008 was the worst year EVER, edging past it's bubble-bursting performance from 2000, with a decline of 40 percent. In 2000, it lost 39 percent.

The numbers are pretty astonishing: The Dow finished last year at 13,264, the S&P at 1,468 and the Nasdaq at 2,652.

Just two Dow stocks finished the year higher: Wal-Mart , which gained 18 percent, and McDonald's , which climbed 5.6 percent. The third-best Dow performer was Johnson & Johnson , which shed 10 percent.

The Dow's worst performers were General Motors , which lost 87 percent, followed by Citigroup , which lost 77 percent and Alcoa , which fell 69 percent.

GM actually ended a bad year on a down note, falling 16 percent today, following news that the auto maker's GMAC financing arm may not have enough capital to become a bank-holding company.

Not surprisingly, financials delivered the worst sector performance, down 57 percent in 2008, while consumer staples were the best performers, down just 18 percent.

Crude oil shed 53 percent, closing out the year at $44.60 a barrel, a far cry — more than a Benjamin — from the intraday high of $147.27 hit back in July.

Of course, investors are already turning to 2009, visions of a recovery dancing in their heads.

And, while the pros disagree on when it will happen, they agree on one thing: It will. So start buying.

"You get in now," Bret Wilsey, president of Wilsey Asset Management, told CNBC. "I don’t know when it’s going to go but if I can get a 30% plus return ... by January 2010, I’ll be very happy," he said. "But I’d be afraid of missing it and waiting too long."

Steve Grasso from Stuart Frankel added, "I think you’ve got probably a couple of months left to make sure you don’t miss the rally."

The last economic data point of the year was a mixed bag: Initial claims for unemployment benefits dropped by 94,000 last week to 492,000, the largest drop since 1992. Economists had expected a drop, but only about 21,000. However, continuing claims for unemployment benefits hit 4.506 million, the highest since 1982.

In today's trading:

The three biggest gainers on the Dow were Bank of America , Alcoa , and Boeing .

Retail stocks got an after-Christmas present from investors, with Jones New York , Nordstrom and Macy's among the top gainers on the S&P 500.

>> See how retailers fared this season at CNBC's Holiday Central.

Motorola shares rose after the handset maker said it will lay off 400 more employees in the fourth quarter than it originally planned, resulting in additional charges. In October, Motorola said it would lay off 1,500 people in the fourth quarter.

Elsewhere in tech land, Dell shares skidded following news that the top two executives at Dell are leaving the No. 2 PC maker as it struggles to reclaim some market share from larger rival Hewlett-Packard .

And Apple slipped as rumors persisted about Steve Jobs' health despite the company's best efforts to reassure investors.

(Are stocks or real estate the better investment for '09? Click on the video at left.)

Time Warner Cable shares skidded after Viacom threatened to yank its cable networks, including Nickelodeon, Comedy Central and MTV, tonight at midnight if the companies don't reach a deal on carriage fees by Jan. 1.

Time Warner responded by taking out full-page ads in some newspapers with the tagline, "Why Is Dora Crying?" and a picture of a teary Dora the Explorer. A similar ad featured a weepy SpongeBob Squarepants.

Meanwhile, investors are still reeling from the Bernard Madoff scandal, with federal prosecutors beginning to consider what role offshore fund operations may have played in the $50 billion Ponzi scheme that Madoff is accused of orchestrating.

The Austrian government may be forced to run Bank Medici after the Madoff scandal hurt the private bank, according to a report in an Austrian newspaper.

Most Asian and European markets closed the session in the green but logged one of their worst years in 100 years.

Australia delivered its worst year ever, posting a loss of 41 percent, while Hong Kong's Hang Seng Index snapped a five-year winning streak to plunge 48 percent in 2008, its worst performance since a 60 percent slump in 1974 fuelled by the world oil crisis. Russia's market lost a whopping 72 percent.

Ringing in the New Year:

THURSDAY: All U.S. financial markets closed for New Year's day
FRIDAY: ISM manufacturing index

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