Stocks should quietly exit 2010, locking in the best December gains in 19 years.
There is no U.S. economic data to sway markets Friday, but there will be plenty to look forward to next week, when the December employment report caps a heavy week of important numbers. The ISM manufacturing report Monday will be significant after Thursday's blow-away Chicago purchasing managers survey. There are also car sales, chain store sales, non-manufacturing ISM and Fed minutes.
European markets close early Friday, and U.S. bond and some commodities markets are open for shortened sessions. The cash bond market closes at 2 p.m., while futures close at 1 p.m. Energy and metals trade on a normal schedule at the Nymex.
Treasury prices mostly fell Thursday as weekly jobless claims were the lowest in 29 months, at a surprising 388,000. The Chicago purchasing managers report at 68.6 was the best since 1988 and shows much stronger-than-expected business conditions in the Midwest. The employment component rose to 60.2 from 56.3; prices paid rose 7.5 points to 78.2, and new orders climbed to 73.5 from 67.2 in November. The 10-year note was yielding 3.36 percent at the close Thursday.
"We sold off a bit with the upbeat data. We didn't see any material uptick on year-end, quarter-end buying, so that could be a risk as we go into tomorrow's session," said Ian Lyngen, senior Treasury strategist at CRT Capital. Lyngen said the final trading day of the year has been a down day for bonds in four of the past five years.
Stocks gave up some gains Thursday, with the Dow down 15 at 11,569, and the S&P down nearly 2 at 1257. Some traders took a 'half-full' view of the Chicago data, suggesting the strength could be a precursor to inflation.
The S&P 500 has gained 12.8 percent for the year, and is up nearly 7 percent for the month of December. This is the best December since 1991, when it was up 11.2 percent. The Dow, up 11 percent for the year and 5.1 percent for the month, is having its best December since 2003, and the Nasdaq, up 6.6 percent this month is seeing its best December since 1999.
The Nasdaq is up 17.4 percent for the year. The Russell 2000 is up 26 percent in 2010, its best year since 2003.
Stock strategists are expecting double-digit gains for next year, but the growing bullishness is spooking traders, many of whom are now looking for a pullback in January.
"I've been very constructive since June, and I'm starting to get cautious," said Jeffrey Saut, chief investment strategist at Raymond James.
Saut expects the beginning of the month to benefit from new money coming into stocks, but there could be some bumps after that. "I haven't really taken any money off the table. I think if we get a 5 to 10 percent pull back in January, I think it's for buying. I think the economy will be better than people think, and I think earnings will continue to surprise to the upside," he said.
The Dow Transports have been a big winner this year, scoring 25 percent, for the best year since 2004.
The best stocks in the Dow Jones Industrial Average were Caterpillar , DuPont , McDonald's , Home Depot and General Electric .
The worst performing Dow shares were Hewlett-Packard , Cisco , Bank of America , Microsoft and Alcoa .
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