Though many Wall Street participants took a holiday
hiatus, stocks still managed a string of record closes and a win last week.
Prices eased slightly on Friday, but the major indexes gained over 1% in a short
trading week.

Prior to Friday, the stock market had closed at
all-time highs for six consecutive sessions. There were few players on the
scene, low volumes, little in the way of economic data, and corporate news flow
was light, but “stocks are acting like they are in a race to the finish
line,” says Fred Dickson, chief investment strategist at D.A. Davidson.
“It was a textbook Santa Claus rally week.”

The Dow Jones Industrial Average advanced 1.6% or
257 points, to 16,478.41. Friday, the average eased slightly, but it remains up
26% on the year. The Standard & Poor’s 500 index rose 1.3% or 23 points to
1841.40. The Nasdaq Composite index picked up 1.3% or 52 points, to 4156.59.

To some extent last week, economic sentiment might
have been boosted by what’s turning out to be a good Christmas retail season,
says Douglas Coté, Chief Market Strategist at ING U.S. Investment Management.
There was heavy media coverage of overwhelmed package-delivery companies, a
“problem” that suggests the economy is busy, Coté says. Additionally,
the stock market seemed to take in stride the move in the 10-year Treasury bond
yield over the psychologically important 3% level, he adds.

The market’s fourth-quarter “gangbusters”
10% rise is capping off a powerful year that could potentially draw back
individual investors, who have missed most of the rally from 2009 lows, Coté
says. Expectations that stock prices will rise over the next six months jumped
7.6 percentage points to 55.1%, the highest in three years, according to the American
Association of Individual Investors’ latest survey.

From a technical point of view, says Dickson, the
rally looks stretched, based on a number of metrics. The thrust has been big
and quick and “usually what happens is a pause or small pullback short
term,” he says, after this kind of move (Source:  Barrons Online).

Good news was once again actually regarded as good
news—at least for a day.

Friday, stocks jumped sharply, bolstered by positive
economic data. That took the market from a week headed for a sharp loss to one
that finished mixed.

In previous weeks, a perverse logic—still in
evidence as late as Thursday—had gripped investors, with the market sometimes
sliding on occasional news of strong economic figures. Investors fear that such
data will push the Federal Reserve to begin its intended removal of its
bond-buying sooner rather than later. That easy-money policy has helped pushed
stocks to record highs this year.

Most investors appear to believe the Fed will begin
the taper in the first quarter and not at the coming Federal Open Market
Committee meeting Dec. 17-18, but there’s a residual fear of that.

After eight consecutive weekly gains, the Dow Jones
Industrial Average fell 0.4% or 66 points to 16,020.20. The Standard &
Poor’s 500 lost less than 1 point.  The
Nasdaq Composite Index rose slightly, 0.1% or three points, to 4062.52.

The data last
week collectively showed one of the strongest economic pictures in some time.
The gamut of figures—jobs, manufacturing, consumer sentiment, gross domestic
product—all suggested a modestly accelerating U.S. economy.

The switch in the market’s reaction to the good news
suggests it previously was more concerned about the economy than the Fed
tapering, says Malcolm Pulley, president of Stewart Capital Advisors. In other
words, investors feared the stimulus reduction would begin when the economy
wasn’t ready. But the slew of solid data was strong enough to get investors
thinking it is.

Friday, the Labor Department said payrolls rose by
203,000 jobs in November, and the unemployment rate fell to 7%, the lowest in
five years. The consensus, respectively, was for 185,000 jobs and a 7.2%
jobless rate. Thursday, the third-quarter annualized GDP was revised up to a
solid 3.6% from 2.8%, and well above the 3.1% consensus.

Much of that GDP rise was due to rising inventories,
points out Pulley, and if those inventories aren’t bought up in the first
quarter, the market could be disappointed.

As for tapering,
Marc Pado, president of DowBull, an investment advisor, says Friday’s reaction
also means the market is getting both more comfortable and certain of the
coming tapering. The economy looks to be getting “a little bit of
traction…and a March taper is pretty certain now,” he adds.

The market strategist adds that while some think a
December move is still possible, the Fed will want to give Janet Yellen, set to
succeed Chairman Ben Bernanke on Feb. 1, time to settle in without the strum
and daring that a December tapering could elicit.

Indeed, the only thing that could prevent a strong
second half of December is a surprise tapering by the Fed next week (Source:  Barrons Online).