Stocks ended a notch below record two-year highs with solid double-digit gains for the year after a quiet New Year's eve session that ended with the major indexes narrowly mixed.
The Dow Jones Industrial Average rose 1,149.46 points in 2010, or 11.02 percent, closing just 7.87 points shy of its closing high of 11,585.38 for the year, hit on Dec. 29. The blue-chip index is up 31.92 percent since 2008. For Friday, the Dow gained 7.80 points or 0.07 percent.
The best performing Dow stock for the year was Caterpillar , up nearly 64 percent, while the worst was Hewlett-Packard, down about 18 percent.
The S&P 500 rose 142.54 points or 12.78 percent in 2010. The broad market index rose 39.23 percent since 2008. On Friday, the S&P 500 fell 0.24 points, or 0.02 percent.
On the S&P 500, the best performer was Netflix , up nearly 219 percent, while the worst was H&R Block , down more than 47 percent.
The Nasdaq rose 383.72 points, or 16.9 percent this year. The tech-heavy index is up 68.2 percent since 2008. On Friday, the Nasdaq fell 10.11 points, or 0.4 percent.
On the Nasdaq 100, the best performer was Baidu , up 134 percent, and the worst was Apollo , down nearly 35 percent.
Small cap stocks, meanwhile, have surged this year. The Russell 2000 index rose 158.26 points, or 25.3 percent in 2010. Since 2008, the index is up 56.9 percent.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose to 18.
Volume on the New York Stock Exchange was light, as it has been all week, with 1.98 billion shares trading on the consolidated tape, 48 percent of the average daily volume in December. Today's volume was also the lightest for a full day this year. On the NYSE floor, 586 million shares changed hands.
Investors hoped to lock in the year's strong gains in the final trading day of 2010. As of the close Thursday, the Dow was up 5.12 percent for December and nearly 11 percent for the year-to-date. The S&P 500 was up 6.5 percent for the month, and 12.8 percent for the year-to-date. The Nasdaq rose 6.6 percent for December, and 17.4 percent for the year-to-date.
December was the best month for the Dow since December 2003, the best for the S&P 500 since December 1991, and the best for the Nasdaq since December 1999.
Consumer discretionary stocks were on pace to be the best performing sector of the year, with Netflix leading the sector. Industrials were the second best, with Cummins leading the sector with a nearly 140 percent gain for the year.
Utilities were the worst performers, with FirstEnergy down the most, falling 20 percent. (Read more: Top Performing Stocks of 2010.)
Financials rose 10.8 percent for the year, with the biggest gains coming in Decemberas the sector rose 10.6 percent.
The late year surge for the sector could aid the broader market as the New Year begins, J.J. Kinahan, chief derivatives strategist at TD Ameritrade told CNBC.
"I think for us to have this next leg up, financials have to lead the way," Kinahan said.
But Steve Cortes, founder of Veracruz, was more cautious, saying the banks were at risk of being pulled down by a double-dip recession for housing.
"Banks have not correctly modeled their risk assessments and have not put enough capital aside for a housing double-dip," Cortes said on CNBC. Noting he doesn't have a position in U.S. banks, he added, "I’d be careful about owning them at these prices." (Watch "Fast Money" bulls and bears analyze commodities and financials.)
In its weekly research note, Goldman Sachs economists said U.S. housing prices were likely fall another 5 percent next year because of excess supply, "as we have only unwound about one-third of the pre-bubble increase in the homeowner vacancy rate so far," Goldman said.
The dollar fell against a basket of foreign currencieson Friday, and was especially weak against the euro, which hit its highest level against the U.S. currency in more than a month. December marked a possible unwindingof the weak dollar-weak stocks trade, as both rose almost in tandem through the month.
The weak dollar has been a key to surging commodity prices this year. The Reuters-Jefferies CRB Index was on pace to gain 15 percent in 2010, led by a 95 percent rise in palladium prices.
The price of oil rose to $91.38 a barrel Friday, ending the year up more than 12 percent with an average price of nearly $80 a barrel, thanks to cold weather, rising global demand, falling inventories, and the weak dollar.
Meanwhile, gold rose 29.76 percent in 2010, closing Friday at $1,421.10 an ounce, a new high.
Borders sank after a report in the Wall Street Journal that the bookstore chain was delaying payments to publishers.
CVS Caremark was down slightly after news the drugstore chain agreed to buy Universal American's Medicare prescription drug business for about $1.25 billion. Shares of Universal American soared.
And IMAX gained on a report in the U.K.'s Daily Mail that Sonymay bid for the big-screen movie company.
Morningstar analyst Larry Witt said in a note that the rumors are not surprising, and have surfaced in the past. "Additionally, IMAX has put itself up for sale a couple times in the past decade, so management may be looking to be acquired once again," Witt said.
ArcelorMittal , meanwhile, rose after news the steel producer boosted its offer to control Baffinland Iron Mines . Rival Nunavut Iron has also bid for the Canadian company, which has a huge deposit of iron ore in the Canadian Arctic.
Shares of the Gap fell after Standpoint Research cut the retailer to "hold" from "buy."
Nintendo rose slightly despite issuing a warning that young children shouldn't play a handheld 3-D game the video game company will be releasing soon. Nintendo said the game could harm the eyes of children aged six and under.
U.S. stock markets will be open for a full session Friday, but the bond market closed at 2 p.m. The New York Stock Exchange said a full session is requiredbecause it's the end of a monthly and yearly accounting period.
No economic news is expected to be released this session.
European shares fell in light volumes with many of the region's indexes closed and the rest trading for a half day. Many Asian stock markets also closed early and the overall picture was amixed one at the close. Australian stocks saw the sharpest declines.
Happy New Year!
On the Calendar Next Week:
MONDAY: ISM manufacturing index, construction spending; new Congress sworn in.
TUESDAY: Auto sales released, factory orders, FOMC minutes, API weekly report; earnings from Mosaic.
WEDNESDAY: MBA mortgage applications, Challenger job-cut report, ADP employment report, ISM non-manufacturing index, oil inventories; earnings from Family Dollar. Kansas City Federal Reserve President Hoenig speaks.
THURSDAY: Chain store sales, Monster employment index, ECB announcement, jobless claims, natural gas inventories, Treasury STRIPS, money supply; earnings from Monsanto.
FRIDAY: Nonfarm payrolls report, consumer credit; Federal Reserve Chairman Bernanke speaks, Federal Reserve Vice Chairman Janet Yellen speaks.
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