DOW- A Happy New Year to 20 WANT WANT

Dow

11,670.75

+93.24

+0.81%

By: Abby Schultz

Stocks ended up nearly a percent or more as investors flocked to stocks, pushing the market to new two-year highs for the first trading day of the year

The Dow Jones Industrial Average rose 93.24 points, or 0.8 percent, to close at 11,670.75, the highest close for the blue-chip index since Aug. 28, 2008. Stocks had ended the year slightly below two-year highs with double-digit gains in each major index.


The S&P 500 rose 14.23 points, or 1.13 percent, to close at 1,271.87, the highest close for the broad market index since Sept. 3, 2008. Among key S&P 500 sectors, financials, telecom and consumer discretionary gained.

The Nasdaq gained 38.65 points, or 1.5 percent, to close at 2,691.52, the highest close since Dec. 26, 2007.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.

The surge in trading Monday could portend good results for the year if recent history is a guide. Each time since 2000 that the S&P 500 index moved up or down 1 percent on the first trading day of the year, that day's gain or loss had a perfect positive correlation to how the market performed for the year, according to a CNBC analysis. In other words, if the S&P gained 1 percent on Jan. 1, the broad market index ended the year higher.

The Dow, meanwhile, has ended the year in the same direction as the first day in 16 of the last 19 years.

In 2010, the Dow gained 11.02 percent, the S&P 500 gained 12.78 percent, and the Nasdaq gained 16.91 percent. The year also ended with a bang: December was the best month for the Dow since December 2003, the best for the S&P 500 since December 1991, and the best for the Nasdaq since December 1999.

Analysts have generally been optimistic about 2011. Citigroup has raised its year-end target for the S&P 500 to 1,400, and for the Dow to 13,150, in part because of the strong December performance for stocks.

Citing solid corporate earnings growth and relatively low stock market valuations, UBS Wealth Management recently raised its earnings estimates for 2010 to $86 from $84, and for 2011 estimates to $96 from $90, and forecasted the S&P 500 Index would hit 1,350 by year-end, or 13 times UBS Wealth Management's 2012 earnings estimate of $104.

While largely optimistic in a note to client, the investment firm also sounded a cautious note. "Look for 2011 to feel a lot like 2011—stocks should grind higher but expect episodic setbacks along the way."

One headwind will be aging baby boomers leaving the "accumulation" phase of their lives and entering the "distribution" phase. But the firm sees many reasons to be positive, including improving profit margins and share buybacks.