What a Week: Goldilocks Returns

Paulson said in a CNBC interview that the world won't tolerate China moving slowly to allow its currency to revalue, and like a good Treasury secretary, he reiterated his belief in a strong dollar.

The euro ended the week down 0.8% from last week's levels against the dollar, and the dollar gained 0.9% in the week vs. the yen.

The major stock market averages also gained ground since last Friday. The Dow Jones Industrial Average gained 0.2% Friday, and 0.9% for the week, while the S&P 500 finished up 0.2% Friday and also up 0.9% on the week to close at 1409.93 after reaching a new six-year high at 1414.76 on Tuesday. The Nasdaq Composite gained 0.4% Friday, up 1% on the week to close at 2437.36.

Leading the Dow on Friday was a 2.3% gain in shares of Citigroup(C Quote), which marks a new 52-week high. The bank's shares soared on speculation of a restructuring that might include shifts in the executive suite as well as a possible asset sale.

Elsewhere, Bank of America (BAC Quote) fell 1.6% on rumors it will acquire Barclays (BCS Quote), which rose 4.4%. The merger scuttlebutt provided a nice bookend to a week that began with news of the Bank of New York (BK Quote)-Mellon Bank (MEL Quote) merger.

Among other stocks in the news Friday, Heelys (HLYS Quote) led a trio of successful IPOs while Expedia (EXPE Quote) jumped nearly 10% on its plans to buy back 30 million shares in a modified Dutch auction. On the flip side, Xilinx (XLNX Quote) shed 6% after offering soft guidance late Thursday although National Semi (NSM Quote) was able to overcome its own red flag.

Sectorwise, the stock market's tea leaves were hard to read this week as riskier small-cap stocks reached new highs along with so-called defensive sectors like utilities. Year-end maneuvering and performance-chasing could be to blame for the seemingly haphazard market, say strategists. But however investors are playing it, the market shows there still is a strong bid for stocks, says McManus.

The Dow Jones Transportation Average gained a fraction on the week amid a fluctuating oil market, nervous about possible OPEC production cuts at its meeting next week. By Friday afternoon, oil prices were down 2.3% on the week at $62.03 per barrel. The Russell 2000 gained 1.5% on the week, while the Morgan Stanley Cyclical Index finished the week up 1.8%.

The Philadelphia Housing Sector Index ended the week up 1.4%. Hopes for a bottoming following comments from Toll Brothers (TOL Quote) and rising mortgage applications trumped an analyst's warning that the stocks have become overvalued having rebounded almost 30% from their lows, and given the risks for the industry in uncertain interest rate environment.

Indeed, the 30-year mortgage rate dipped below 6% in the past week, but it seems unlikely to stay there given the bond market's reaction to November's data. The 30-year bond finished the week yielding 4.66%, up from 4.55% last Friday, while the 10-year note climbed to 4.56% from 4.43% a week ago. The two-year note yielded 4.68% at week-end, up from 4.52% last Friday.

Investors aren't expecting any moves at the final FOMC meeting of the year scheduled for Tuesday. But many are hoping for clues to the Fed's outlook on for the economy given the new data in hand, the bulk of which suggests a soft landing for the economy -- and that Goldilocks hasn't left the building after all.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting