Stocks End Good Year on Sour Note

The Dow loses more than 60 points in a surge of selling in the last half-hour of trading on New Year's Eve. But overall, it was a terrific year for stocks.
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NEW YORK (

TheStreet

) -- The

Dow

rang out 2009 with a selloff into the close Thursday, as the U.S. dollar strengthened, prompting traders to ditch riskier assets.

The

Dow Jones Industrial Average

closed down 120.5 points, or 1.1%, to 10,428.1. More than half of that selling came in the last minutes of trading.The

S&P 500

finished down 11.3 points, or 1%, at 1115.1 and the

Nasdaq

was off 22.1 points, or 1%, at 2269.2.

Even with Thursday's decline, the

Dow

finished the year up 18.8%. The

Nasdaq

gained 43.9% and the

S&P 500

was up 23.5% on the year. For the Dow, it was the biggest yearly point and percentage gain since 2003.

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The close at the end of the decade was less encouraging. The Dow has lost 9.3% over the past 10 years while the S&P 500 and the Nasdaq are down by 24.1% and 44.2%, respectively.

The final trading week of the year is typified by light trading, sandwiched between two long holiday weekends, and 2009 was no exception. Trading volume on the Dow stood at 137.9 million, compared with an average daily volume of 200.4 million.

Late in the session, the U.S. dollar pulled slightly ahead against a basket of foreign currencies, up by 0.1% and prompting a sharp selloff in the stock market.

Commodities had already finished the session ahead. Oil for February delivery settled up by 8 cents, or 0.1%, at $79.36 a barrel and the February gold contract settled up by $3.70 at $1,096.20 an ounce.

Prices on U.S. Treasuries were lower, pushing yields higher. The two-year note's yield was up to 1.143% and the yield on the 10-year note rose to 3.837%.

Looking back on 2009, Neil Hennessy, portfolio manager of Hennessy Funds, sees an end to the boom-and-bust years of late, projecting modest yearly gains along the lines of 8%-12%. Going into 2010, he advised investors to pay attention to where people have been putting their money.

"The bond funds are getting all the money, but with interest rates at zero, they're only going to go up," Hennessy said, who advised putting money in high-dividend paying stocks. "In the past, people didn't retire on fixed income, they did it on dividends. What a lot of people don't know is that as dismal as 2009 was, 30% of the Dow Jones companies raised their dividends. Besides earnings, the only other way to raise shares is to increase dividends, and that's what I think you're going to see happen in the coming year."

In economic news, the Chicago Institute for Supply Management docked its December reading of business activity to adjust for seasonal factors. The number was revised to 58.7 from 60, which was reported Wednesday. Although the figure still beat the 55 level that economists had been expecting, those market participants not already on vacation didn't view the adjustment favorably.

Earlier Thursday, the Labor Department said

initial jobless claims fell by 22,000, to 432,000 claims in the week ended Dec. 26 and hitting the lowest level since July 2008. Economists had expected an increase to 460,000, from an upwardly revised 454,000 in the prior week.

The financial sector showed the most strength, with

Goldman Sachs

(GS) - Get Report

closing ahead by 1.3%,

JPMorgan Chase

(JPM) - Get Report

up by 0.3% and

Wells Fargo

(WFC) - Get Report

finishing up by 0.6%.

Caterpillar

(CAT) - Get Report

and

Hewlett-Packard

(HPQ) - Get Report

were among the Dow's biggest laggards, closing down by 1.8% and 2.7%, respectively.

Time Warner Cable

(TWC)

has until midnight Thursday to resolve a dispute over programming fees with

News Corp.

(NWSA) - Get Report

If an agreement isn't reached, News Corp. has threatened to pull Fox shows from Time Warner subscribers' televisions. Time Warner's stock finished off by 1.1% while shares of News Corp closed lower by 1.6%.

Overseas, Hong Kong's Hang Seng finished its shortened trading session up by 1.8% and gained 52% throughout 2009. The Nikkei in Japan was closed. The FTSE in London ended its shortened trading session up by 0.3%, and the DAX in Frankfurt was closed on Thursday but finished the year ahead by nearly 24%.

As for next year, Hennessy also expects strong earnings to lift stocks.

"Corporations in 2009 did the exactly the same thing as they did in 2002: They laid off workers, cut excess costs, discontinued unprofitable businesses, paid down debt and hoarded cash. These companies are going into 2010 lean and mean, so any increases they get in revenues are going to go straight to the bottom line," he said.

However, Washington presents a big question mark in 2010, according to Hennessy.

"We're getting no clarity out of Washington," he said. "All businesses need is clarity. We need to know the rules before we can start getting people back to work."

--Written by Melinda Peer in New York

.