Stocks Slip; Will End Year With Strong Gains

Stocks turned largely negative in the final minutes of trading, but were on pace to end the year just below record two-year highs with solid double-digit gains for the year amid thin New Year's Eve trading.

The Dow Jones Industrial Average rose a few points, slipping back after topping 11,585, its most recent two-year record. The blue-chip index was on pace to post gains of nearly 11 percent for 2010.

Alcoa , American Express and Verizon rose, while Hewlett Packard and 3M fell.

The S&P 500 and the Nasdaq fell. Among key S&P 500 sectors, telecom, energy and utilities rose, while technology and consumer discretionary fell.

Small cap stocks, meanwhile, have surged this year. The Russell 2000 indexwas trading at break-even levels, but remains on pace to end the year up more than 26 percent.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose to nearly 18.

Volume on the New York Stock Exchange remained light, as it has all week. As of about 3:15 P.M., volume on the consolidated tape was 1.3 billion shares, less than half the usual volume.

Investors hoped to lock in the year's strong gains in the final trading day of 2010. As of the close Thursday, the Dow was up 5.12 percent for December and nearly 11 percent for the year-to-date. The S&P 500 was up 6.5 percent for the month, and 12.8 percent for the year-to-date. The Nasdaq rose 6.6 percent for December, and 17.4 percent for the year-to-date.

The best performing Dow stock for the year through Dec. 23 was Caterpillar , up nearly 66 percent, while the worst was Hewlett-Packard, down nearly 19 percent.

On the S&P 500, the best performer was Netflix , up more than 235 percent, while the worst was Dean Foods . On the Nasdaq 100, the best performer was Baidu , and the worst was Apollo .

Consumer discretionary stocks were on pace to be the best performers of the year, with Netflix leading the sector. Industrials were the second best, with Cummins leading the sector with a 140 percent gain for the year.

Utilities were the worst performers, with FirstEnergy down the most, falling 19.8 percent. (Read more: Top Performing Stocks of 2010.)

Financials rose 10.6 percent for the year, with the biggest gains coming in Decemberas the sector rose 10 percent through Dec. 23.

The late year surge for the sector could aid the broader market as the New Year begins, J.J. Kinahan, chief derivatives strategist at TD Ameritrade told CNBC.

"I think for us to have this next leg up, financials have to lead the way," Kinahan said.

But Steve Cortes, founder of Veracruz, was more cautious, saying the banks were at risk of being pulled down by a double-dip recession for housing.

"Banks have not correctly modeled their risk assessments and have not put enough capital aside for a housing double-dip," Cortes said on CNBC. Noting he doesn't have a position in U.S. banks, he added, "I’d be careful about owning them at these prices." (Watch "Fast Money" bulls and bears analyze commodities and financials.)

In its weekly research note, Goldman Sachs economists said U.S. housing prices were likely fall another 5 percent next year because of excess supply, "as we have only unwound about one-third of the pre-bubble increase in the homeowner vacancy rate so far," Goldman said.

The dollar fell against a basket of foreign currencieson Friday, and was especially weak against the euro, which hit its highest level against the U.S. currency in more than a month. December marked a possible unwindingof the weak dollar-weak stocks trade, as both rose almost in tandem through the month.

The weak dollar has been a key to surging commodity prices this year. The Reuters-Jefferies CRB Index was on pace to gain 15 percent in 2010, led by a 95 percent rise in palladium prices.

The price of oil rose to $91.38 a barrel Friday, ending the year up more than 12 percent with an average price of nearly $80 a barrel, thanks to cold weather, rising global demand, falling inventories, and the weak dollar.

Meanwhile, gold rose 29.76 percent in 2010, closing Friday at $1,421.10 an ounce, a new high.

Borders sank after a report in the Wall Street Journal that the bookstore chain was delaying payments to publishers.

CVS Caremark was down slightly after news the drugstore chain agreed to buy Universal American's Medicare prescription drug business for about $1.25 billion. Shares of Universal American soared.

And IMAX surged on a report in the U.K.'s Daily Mail that Sonymay bid for the big-screen movie company.

Morningstar analyst Larry Witt said in a note that the rumors are not surprising, and have surfaced in the past. "Additionally, IMAX has put itself up for sale a couple times in the past decade, so management may be looking to be acquired once again," Witt said.

ArcelorMittal , meanwhile, rose after news the steel producer boosted its offer to control Baffinland Iron Mines . Rival Nunavut Iron has also bid for the Canadian company, which has a huge deposit of iron ore in the Canadian Arctic.

Shares of the Gap fell after Standpoint Research cut the retailer to "hold" from "buy."

Nintendo rose slightly despite issuing a warning that young children shouldn't play a handheld 3-D game the video game company will be releasing soon. Nintendo said the game could harm the eyes of children aged six and under.

U.S. stock markets will be open for a full session Friday, but the bond market closed at 2 p.m. The New York Stock Exchange said a full session is requiredbecause it's the end of a monthly and yearly accounting period.

No economic news is expected to be released this session.

European shares fell in light volumes with many of the region's indexes closed and the rest trading for a half day. Many Asian stock markets also closed early and the overall picture was amixed one at the close. Australian stocks saw the sharpest declines.

Happy New Year!

On the Calendar Next Week:

MONDAY: ISM manufacturing index, construction spending; new Congress sworn in.
TUESDAY: Auto sales released, factory orders, FOMC minutes, API weekly report; earnings from Mosaic.
WEDNESDAY: MBA mortgage applications, Challenger job-cut report, ADP employment report, ISM non-manufacturing index, oil inventories; earnings from Family Dollar. Kansas City Federal Reserve President Hoenig speaks.
THURSDAY: Chain store sales, Monster employment index, ECB announcement, jobless claims, natural gas inventories, Treasury STRIPS, money supply; earnings from Monsanto.
FRIDAY: Nonfarm payrolls report, consumer credit; Federal Reserve Chairman Bernanke speaks, Federal Reserve Vice Chairman Janet Yellen speaks.

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