The final trading week of the year was the worst week for the Dow and S&P 500 since Nov. 4, the week before the election. For the first time since then, the Dow, Nasdaq and S&P 500 all lost ground for three consecutive sessions.
The Dow flirted with 20,000 early in the four-day week but was down 0.8 percent to close at 19,770 Friday. The S&P 500 lost 1.1 percent to 2,239, and the Nasdaq was off 1.5 percent for the week at 5,383. As stocks sold off, buyers went into bonds and the 10-year yield ended the year at 2.44 percent, up from 2.27 percent in 2015.
"As for the short-term, I think you could still see some optimism for the new year," said Paul Hickey, co-founder of Bespoke. "You could see some short-term upturn."
But the soggy trading of the final days of 2016 could also see some follow-through if investors who want to position for 2017, held off to sell in the new year in anticipation of lower taxes on capital gains.
"Last year, we were anticipating a rough start to the year because of earnings, and then stability. This year we could see the opposite," Hickey said. Stocks have rallied hard on expectations that President-elect Donald Trump will push through corporate tax reform, eliminate regulations and launch a fiscal spending program, but Hickey said the market will start to trade on his ability to deliver and the timing.
Strategists mostly expect single-digit gains for the market, and many forecasts are between 2,300 and 2,400 for the S&P 500.
Citigroup's Tobias Levkovich says he has become more bullish after the election, because of what he sees as a better environment for business, and therefore stocks, in 2017. Corporate tax cuts should help boost earnings, which he already sees growing by 6 or 7 percent for the S&P 500 because the drag from energy has ended.
Levkovich bumped up his S&P forecast to 2,425 for 2017, but he also says the market may have borrowed some of 2017's gains in the run up to the new year.
"In the near term, I'm a buyer on any weakness, because I still see the market going higher. I don't think anybody's really euphoric. They worry about trade issues with Trump. They worry about geopolitical dynamics," and whether Trump appears to be too close to Russian President Vladimir Putin, said Levkovich.
"There are things we're going to have to worry about. What's the timing of the legislation? What happens to the dollar? Does the economy slow in Europe ahead of the French election?" said Levkovich, who is chief U.S. equities strategist. But overall, the improving economy and business climate should be supportive for stocks.
"There's very little question that a reduced regulatory backdrop with reduced taxes should encourage corporate animal spirits. The two things businesses are concerned by are high taxation and high regulation," said Levkovich.
Economic data in the coming week will be watched but is unlikely to influence the market as much as some other events, unless there are big surprises either way.
"It's going to be all about what's going on with Trump. Does this turn into a real fight with McCain and others going after Trump?" said Art Cashin, director of floor operations at UBS.
Arizona Sen. John McCain set a hearing for next week on foreign cyberthreats, after the White House sanctioned entities and individuals believed to be involved in alleged Russian interference with the election. The U.S. also ejected 35 Russian diplomats, but Putin said he would not retaliate yet with a similar move. Trump, in atweet, praised the Russian president for being "very smart," and said he would look into the allegations in intelligence briefings next week.
The saga is not affecting the market, but traders are watching it closely as an early test case for President-elect Trump.
"The Fed minutes will be somewhat important but they're changing the voters," said Cashin. The minutes are from the December meeting where the Federal Open Market Committee voted to raise rates for the second time since the financial crisis.
There are several Fed speakers next week, with Chicago Fed President Charles Evans, Richmond Fed President Jeffrey Lacker and Dallas Fed President Rob Kaplan all speaking on Friday.
The big economic release will be the December jobs report, expected to show 170,000 nonfarm payrolls and a slightly higher unemployment rate of 4.7 percent, according to Thomson Reuters.
"The jobs number almost doesn't count unless there's a major surprise. The Fed is as curious as anybody as to what's in Trump's program and how fast does he move on it," said Cashin.
Cashin expects new money to come into the market for the new year.
Hickey said there's some apprehension that January will be negative since the past three Januarys have been weak for stocks. But he said he does not expect January to be down, and the old adage "so goes January, so goes the market" has proven itself to no longer relevant. The S&P was down 5.1 percent last January and the market bottomed hard in February.
Oil was a big story in 2016, bottoming in February below $30, and finishing the year with a 45 percent gain. West Texas Intermediate crude futures for February ended the year at $53.72 per barrel.