CNBC's Domm: Monday's Market Outlook

U.S. stocks look set to spring higher, as of now, as the year end rally pulls in buyers and takeover activity supports prices. Japanese stocks closed at a seven month high ahead of tomorrow's rate decision by the Bank of Japan. European markets are flat to higher, helped by takeover activity.

HOT STOCKS: The Dow closed out last week up 138 points or 1.1 percent higher, finishing Friday with its twentieth record setting session since early October. The NASDAQ was up 0.8 percent for the week, marking its fifth positive week in six, and the S&P was up 1.2 percent on the week, closing at a fresh six year high Friday.

The NAHB survey is released today and has been market moving of late. The current account deficit is expected to widen to about $225 billion for third quarter when it is reported this morning.

Oil is slightly lower this morning. Reuters is reporting that tankers are having difficulty delivering to refineries in Houston and Texas City for a fourth day because of dense fog. Norway's Norsk Hydro and Statoil announced a $28 billion merger deal this morning, giving a boost to energy stocks in Europe. Friedman Billings Ramsey, meanwhile, reportedly lowered the US refining sector to market weight from overweight, citing its belief that utilization rates have peaked.

MERGER MONDAY: Takeover activity is bubbling along. Harrahs is reportedly close to accepting a $16.7 billion offer from Apollo Management and Texas Pacific Group. Smaller Express Scripts jumped into the middle of Caremark's deal with CVS , offering $26 billion in cash and stock for Caremark. Busy Apollo also struck a deal to buy Realogy, owner of real estate brokers for $9 billion. Delta Airlines, uninterested in USAir's $8.4 billion takeover bid, is set to file a bankruptcy reorganization plan tomorrow valuing the company at $10 to $12 billion, The Wall Street Journal reports.

In other corporate news, Eli Lilly could feel some pain from the New York Times story on its drug Zyprexa over the weekend. The paper, citing internal documents, says that company officials played down health risks. Lily disputes the story. Today the Times says Lilly encouraged doctors to use the drug for unapproved uses. Lily says it didn't promote the drug for off-label uses.

Oracle reports earnings after the bell today, and Morgan Stanley reports tomorrow morning.

THE LAST WORD: It's the time of year when we love to guess where the markets are going next year. Who better to ask than our Larry Kudlow, who has been dead on right for months now. Day after day, Kudlow told us that the stock market's early run was the greatest story never told! Good call. The Dow's up 16 percent for the year so far and the S&P is up 14. For the final nine trading sessions of 2006, he sees stocks trading flat to higher and "the tone is good." For next year, he predicts the Dow rises eight percent.