With the predictability of a seesaw, the dollar falls and stocks move higher.
That's the "risk on" trade, and traders say it may now work into year end, unless another Dubai-like situation comes up.
The Dow rose 126 or 1.2 percent to a new 2009 high of 10,471 as fears about Dubai's debt problems dissipated. The S&P 500 was up 13 points or 1.2 percent to 1108, just shy of last week's high of 1110. The dollar fell nearly a half percent against the euro Tuesday, giving it a year-to-date loss of 7.4 percent.
Commodities moved higher, with gold breaking yet another record. Gold finished at $1199.10 per ounce, after moving above $1200 for the first time. Oil was 1.4 percent higher at $78.37 per barrel.
"I think there's a lot of overseas money coming into the market," said Patrick Boyle, managing director at LaBranche Financial. "I think Thursday night's Dubai scare had international accounts thinking about their portfolios and how they're set up. The emerging markets had such a good run that you're going to take some money off the table. The scenario seems to be that the U.S. market is going to grind higher for the rest of the year."
The financials were the only losing sector, with American Express, J.P. Morgan, and Goldman Sachs, among the decliners. The best performing sector was materials, up 1.5 percent, followed by energy, up 1.4 percent.
Auto makers released lackluster November sales data Tuesday. The big shocker for the industry though came late in the day when General Motors announced the sudden resignation of CEO Fritz Henderson, after its board decided a change was needed. Chairman Ed Whitacre said he will replace Henderson while the search for a new CEO is conducted. Henderson also got the boot on the eve of his address at the Los Angeles auto show Wednesday.
General Electric and Comcast stocks were both higher Tuesday. CNBC's David Faber reported that the two are expected to announce their deal for joint ownership of GE's NBC Universal unit on Thursday. NBC Universal is the parent of CNBC.
What to Watch
With an absence quarterly earnings news, the focus shifts to economic data and this Friday's key jobs report.
On Wednesday, ADP's private sector payroll report is released at 8:15 a.m. While not a true indicator of the government statistics, traders watch it as a type of barometer for the monthly payrolls number. The Fed also releases its beige book on the economy at 2 p.m.
Deutsche Bank chief U.S. economist Joseph LaVorgna said he expects the ADP number to be a loss of 110,000. He expects the November jobs report to show the loss of 90,000 non farm payrolls on Friday.
"ADP has some value, but you can overstate its strength based on history because they've changed the series a lot," said LaVorgna.
LaVorgna also expects the unemployment rate to slip to 10 percent from 10.2 percent. "I think it's peaked. It's coming down," he said. Many economists see the peak in unemployment some time next year.
"The equity market tends to trough nine months before the peak in unemployment," he said.
LaVorgna said he does not expect the Fed to make any move to hike interest rates until next August. Historically, the Fed has waited six months from the peak of unemployment, he said.
He said next year's market themes will be rising dollar and higher rates as markets look ahead to the Fed's reversal of its low interest rate policy. "I think a pain trade for next year is going to be a stronger dollar. I think the market is long in the tooth on the short dollar theme," he said.
"I think the trade weighted dollar will be weak into year end because a lot of investors are closing their books," he said. "...I think generally speaking, the dollar will remain weak and then next year, I think you could get some anticipatory movement in the currency if it looks like unemployment is falling. We may break new lows in 2011, but next year, the dollar goes up."
He said the Fed's beige book release Wednesday should reflect the Fed's upgraded economic outlook. "I think it'll be cautiously optimistic," he said.
Richmond Fed President Jeffrey Lacker speaks at the Charlotte Chamber of Commerce's annual economic outlook conference.
Treasury Secretary Tim Geithner testifies before the Senate Agriculture Committee on regulating the derivatives market.
Both the House Financial Services and Senate Banking committees will focus on financial regulatory reform Wednesday.
— Questions? Comments? marketinsider@cnbc.