Stocks rebounded Friday, pushing the Dow above the key 9,000 mark, as investors rang in the new year with optimism and scooped up bargains.
"I think closing the door on 2008 and putting that ugly year behind us created a natural sense of optimism," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
"The folks I've talked to think that this market is going to rally up to the inauguration and then fall," Ablin said. "I do think this a year where we get double-digit gains in stocks, I just don't think it's going to happen that quick. ... we still have to slog through some big issues."
The Dow Jones Industrial Average gained 258.30, or 2.9 percent, to close at 9,034.69. It was the first time the Dow has closed above 9,000 since early November. (The Dow last hit 9,000 intraday in early December.)
This comes on the heels of the best two-day year-end rally ever for the stock market.
For the week, the Dow gained more than 500 points, or 6.1 percent, snapping a four-week losing streak.
All 30 Dow components finished the day higher. General Motors was at the top of the pack, jumping 14 percent, followed by Alcoa and Citigroup . JPMorgan was the weakest Dow performer.
Ford shares gained 7.4 percent even as the auto maker said it sees no signs of a turnaroundin the first quarter.
The tech-heavy Nasdaq outperformed the broader market Friday, jumping 3.5 percent, while the S&P 500 rose 3.2 percent.
Leading the Nasdaq 100 were chip-maker Sandisk and GPS-gadget maker Garmin , up 15 percent and 14 percent, respectively.
Big-caps also posted solid gains, with Apple up 6.3 percent, Dell up 5 percent and Microsoft up 4.6 percent.
Stocks had briefly dipped after an ISM report showed manufacturing activity at a 28-year low.
The Institute for Supply Management reported its manufacturing index dropped to 32.4 in December from 36.2 in November, the lowest reading since June 1980. New orders hit a record low. Economists had expected a more modest drop in the headline number, pegging the gauge at 35.5, according to a Reuters survey.
December was the "slowest month in years," said one respondent, who works in the chemical-products industry.
Interestingly, another respondent said. "Business remains steady and sales are good." That person works in the computer and electronic-products industry.
The unemployment report next week will be a crucial indicator for the markets, which will be preparing for "ugly economic numbers," Peter Cardillo, chief economist, Avalon Partners, told CNBC.
Analysts expect to see that another 485,000 jobs were cut from nonfarm payrolls, which would push the total above 2 million jobs lost in 2008.
U.S. auto makers report December sales on Monday — Ford projected a 35-percent drop industrywide in what could be the worst month for auto makers on record.
Also next week, we'll get the first snapshot from retailers on December sales, a crucial month that includes the holiday season, which could also prove to be pretty ugly.
Market pros were optimistic about investment opportunities for 2009 after stocks shed 34 percent in 2008, logging their worst year since 1931. In fact, some market pros say stocks could gain more than 20 percentthis year, according to CNBC's Trillion Dollar Survey.
Still, some cautioned that there's more pain to come in the first half as companies continue to shake out losing investments in their earnings reports.
Financials joined in the rally by the closing bell, after resisting for much of the session.
JPMorgan eked out a gain of 0.6 percent, while Goldman Sachs rose 2.8 percent and Citigroup advanced 6.4 percent.
"I think the financials are definitely going to be a laggard," Gary Hager, founder of Integrated Wealth Management, told CNBC. "But I really have good feelings that the financials, just like other parts of the market, will come from behind and will make a screaming run towards the end of the year."
A couple of high-profile deals closed: Bank of America said Thursday it has completed its $19.4 billion all-stock purchase of Merrill Lynch, while Wells Fargo said it has completed its $12.7 billion all-stock purchase of Wachovia.
Investors were eager to see what President-elect Obama's economic-stimulus would look like.
Obama was set to meet with House Speaker Nancy Pelosi Monday to discuss a stimulus bill, the Washington Post reported.
The steel industry is also watching closely for details of the stimulus package, appealing for a "buy American" clause, hoping government orders will fill the void of the collapse in demand, the New York Times reported.
Steel stocks advanced, with Nucor up 4.6 percent and US Steel up 6.2 percent.
Traders picked up some post-Christmas deals in the retail sector, with Nordstrom gaining 9.3 percent and Macy's advancing 6.1 percent.
Chip stocks advanced even after a report showed chip sales plunged 10 percentin November, led by a sharp drop in memory-chip sales. Micron Technology and National Semiconductor were among the top gainers, with each gaining more than 7.5 percent.
Energy stocks also advanced as crude oil settled at $46.34 a barrel , a 23-percent jump for the week.
On Tap for Next Week:
MONDAY: Congressional hearings on Madoff case begin; Obama to meet with Pelosi on stimulus plan; auto sales; construction spending
TUESDAY: ISM services index; factory orders; pending-home sales
WEDNESDAY: Weekly mortgage applications; ADP employment report; weekly crude inventories; Earnings from Constellation Brands, Family Dollar, Monsanto and Bed, Bath & Beyond
THURSDAY: ECB and BOE rate decisions; Chain-store sales; weekly jobless claims; consumer credit
FRIDAY: Jobs report; wholesale trade; Earnings from KB Home
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