The Standard & Poor’s 500 will enjoy a merry Christmas after all.
The broad blue-chip index turned positive on the year, thanks to a weeklong rally paced by encouraging economic data and the resolution of the congressional deadlock over the payroll tax cut.
“The rally we’ve seen is the stock market recognizing that the economy is firming,” said John Bollinger, head of Bollinger Capital Management in Manhattan Beach.
The S&P rose 11.33 points, or 0.9%, to 1,265.33 on Friday, putting the index up 0.6% year to date, with only an abbreviated week of trading left in 2011. Stock and bond markets in the U.S. are closed Monday.
The Dow Jones industrial average gained 124.35 points, or 1%, to 1,2294.00 on Friday, and the Nasdaq composite index advanced 19.19 points, or 0.7%, to 2,618.64. The Dow is up 6.2% so far this year, while the technology-heavy Nasdaq is down 1.3%.
The climb in the S&P puts the two most widely watched U.S. averages in positive territory for 2011, a not-insignificant accomplishment considering the turmoil that has thrashed stock prices this year. Investors have been sideswiped by a number of economic challenges, including the lowering of the U.S. credit rating and the continuing debt crisis in Europe.
By comparison, the Euro Stoxx 50 has fallen 18%, Australia’s S&P/ASX 200 index is down nearly 13%, and Japan’s Nikkei 225 has slid nearly 18% year to date.
The rise in the S&P 500 arguably has the most direct effect on individual investors, many of whom own mutual funds that are tied to the index.
It’s too soon to say whether the stock market has turned a permanent corner and is headed even higher. Stocks got a boost from light trading volume in the pre-holiday week, when the tilt of economic news can have an outsized effect on the direction of the market.
Also, institutional investors often sell stocks late in the year for tax purposes or to spruce up their portfolios before divulging their year-end holdings to investors. Though much of that process already has taken place, it could put pressure on stocks early next week.
But analysts remain encouraged that stocks appear to be ending the year strongly. The market has historically fared well in the third year of a presidential election cycle, and the S&P’s underwhelming performance had raised concerns about its prospects in 2012.
The direction of stock prices in January might be driven by quarterly earnings, which may be less rosy in the fourth quarter than they have been in previous quarters.
The proportion of S&P 500 companies pre-announcing better-than-expected quarterly earnings fell to 57% this quarter, according to FactSet Research Systems. That’s the first time it has dropped below 60% since the first quarter of 2009, when it was 59%.