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After Dow 18K, next up: 2,100 on the S&P 500

Weekly jobless claims and mortgage applications punctuate what will likely be a quiet day for markets Wednesday, as lightly staffed trading desks prepare for an early close.

The Dow broke through and closed above 18,000 for the first time Tuesday, and the S&P 500 closed at a record 2,082, just 18 points shy of 2,100. The Dow ended the day 64 points higher at 18,024, but the Nasdaq was lower, down 15 at 4,765 as selling in biotechs weighed on the index.

"The Santa rally already started. It (S&P) moved 5 percent from last Thursday. Maybe it will digest a little bit in the next few days," said Scott Redler, partner with T3Live.com. "With low volume, digestion would be nice because that would reset the market for a potential move above 2,100 when the New Year starts."

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

As stocks rallied Tuesday, bonds sold off. Third-quarter GDP growth was revised to a stunning 5 percent, and November consumer spending was up a strong 0.6 percent. But durable goods surprised to the downside, and traders said the markets were more influenced by year-end positioning than any news.

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The two-year note late Tuesday was yielding 0.73 percent, the highest level since 2011. But the two-year has also been selling off on the anticipation of Fed rate hikes next year.

"Two-years tend to lead short-term rates higher when it anticipates that the Fed is going to begin to tighten," said Ward McCarthy, chief financial economist at Jefferies. "You can see it in some of the bills."

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The 10-year was yielding 2.26 percent late Tuesday.

"In volume terms, this is the sixth-quietest day of the year," said David Ader, chief Treasury strategist at CRT Capital. "We're coming in to a thinly traded, illiquid time of year. People have gotten through a refunding, they've gotten through this week's auctions, and I think they were holding on and probably got here, and they got stopped out."

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As for stocks, traders say they could continue to drift higher on year-end buying. Data expected to be released include weekly mortgage applications at 7 a.m. ET and weekly jobless claims at 8:30 a.m.

Stock traders are also watching the price of oil, up sharply Tuesday after selling off Monday.

The key is whether oil holds the low from week, at around $54 per barrel for West Texas Intermediate futures. Oil inventory data is released by the government at 10:30 a.m., and that could be market moving Wednesday.

Stocks close at 1 p.m. for the Christmas holiday, and reopen for a full trading day Friday morning.

CORRECTION: This story has been updated to show that weekly mortgage applications data will be released on Wednesday.