Wall Street Ends Dismal 2008 on Up Note

Stocks rally into the close of a the final trading day of the calendar year.
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Updated from 4:16 p.m. EST

Stocks in New York closed 2008 -- a year of financial turmoil, global crises and high-profile rescues -- with a small win for the day but historic losses for the year.

In its worst year since 1931, the

Dow Jones Industrial Average

gave up 33.8% in 2008, ending the year at 8776.39; the

S&P

fell 38.5% to 903.25 in 2008; and the

Nasdaq

lost 40.5%, signing off 2008 at 1577.03.

In the final trading session of '08, the Dow gained 108 points or 1.3%, the S&P 500 added 12.61 points, or 1.4%, on the day, and the Nasdaq tacked on 26.33 points, or 1.7%.

The major U.S. markets will be closed Thursday in observance of the New Year's holiday -- but the new trading year launches Friday and Street watchers are looking forward.

"We're keeping our eye on the pickup in volume and obviously the kickoff of the earnings season," says Chris Johnson, CEO and chief investment strategist of Johnson Research, on what he'll watch as we start 2009. The earnings season, which will start symbolically with

Alcoa

(AA) - Get Report

on Jan. 12, will be the most critical one we'll see, says Johnson, noting that expectations are still relatively high.

Investors will continue to look for mile markers as they track the course of the recession into the new year.

The market got an unusual dose of economic data Wednesday morning that at face value was better than expected. The number of people seeking

unemployment benefits

fell to 492,000 from 586,000 a week prior and well below economists' expectation for 575,000. However, "seasonal factor volatility" played a part according to the Department of Labor.

"Until there's more clarity, I would not yet put jobless claims on a list of figures suggesting the worst has thus far been seen. It is a list that remains nearly empty," writes Tony Crescenzi, chief bond market strategist for Miller Tabak, on his

Real Money blog

.

The number of people continuing to draw claims climbed to 4.5 million, according to the Department of Labor, the highest since 1982.

In other data, mortgage application volume was fairly steady over the last week, after a 48% rise the week prior. The purchase index, which includes conventional mortgages and government-insured mortgages, was 320.90 in the latest week, up from 316.50 the previous week.

"Mortgage applications for many weeks had been sliding, reaching their lowest in eight years two weeks ago, reflecting an increase in mortgage rates, falling home prices, poor employment conditions and the realization amongst prospective home buyers that mortgage credit has become more difficult to obtain," writes Crescenzi.

But borrowers are taking advantage of Interest rates that plummeted last month after the

Federal Reserve

said it would buy up to $600 billion in mortgage-backed securities and other debt issued by government-controlled mortgage giants

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

.

"Today's and recent data suggest there is potential for relief in the housing crisis, and the relief could grow if the Federal Reserve fulfills its threat to expand its initiative to purchase agency and mortgage-backed securities," writes Crescenzi.

Economic news earlier in the week was discouraging, as expected, with weak retail sales data, the worse yet consumer sentiment numbers and an 18% drop in the S&P/Case-Shiller home price index.

"Yet the market shrugged off all of the above and rose," writes Vince Farrell, chief investment officer at Soleil Securities Corp. "When markets can do that, it's possible that the bad news has been fully discounted."

But remember that volume has been extremely light, says Johnson. "People are watching 2008 go into their rearview mirror, but many of the problems will still be there in the new year."

Moreover, "investors aren't looking at economics, they are looking at bailouts," says Johnson, who predicts we will see some bailout backlash in 2009. "Money was thrown out to calm the markets -- but it's going to be time to get back to reality."

In a sign of the times, Lake Superior State University included "bailout" and the "Wall Street/Main Street" dyad in its list of banished words for 2009.

Fitting in one last

bailout

in 2008, the Treasury Department said Tuesday it will provide $5 billion to

GMAC Financial Services

, GM's auto and mortgage financing arm, in return for preferred shares that pay an 8% dividend and warrants to purchase additional shares.

GM lost 15.8% for the day, trading down to $3.20, while fellow automaker

Ford

(F) - Get Report

ended flat at $2.29. Those stocks were at $24.35 and $6.73, respectively, a year earlier.

American International Group

(AIG) - Get Report

, one of the biggest bailout stories of the year, is preparing to ask the Federal Reserve for more flexibility on how potential buyers can foot assets as it tries to repay a $60 billion loan, according to a reports from the

Associated Press

and

Financial Times

. AIG shares were up 0.6% at $1.57 for the day -- down from $57.14 a year prior.

In one of the most troubling investment stories of 2008 that will continue to unravel into the new year, market maker Bernard Madoff was to submit a list of his personal assets to the

Securities and Exchange Commission

on Wednesday, including property that could be tapped to make restitution to victims of his $50 billion Ponzi scheme. The document, of obvious interest to the victims of the scheme, will not be made public, according to the SEC.

In corporate news,

Credit Suisse

(CS) - Get Report

said it will pick up a 25% stake in Aberdeen Asset Management in exchange for its traditional fund management business. Credit Suisse garnered 2.7% to $28.26 in the last trading day of the year. (They closed at $57.66 on the last day of 2007).

Computer maker

Dell

(DELL) - Get Report

said that it will reconfigure its executive lineup as part of its global restructuring. The company said Michael Cannon, president of global operations, and Mark Jarvis, chief marketing officer, will leave the company. Shares edged up a penny to $10.24 in the session.

Also, the world's third-largest independent chemical company, LyondellBasell Industries, has informed lenders that a Chapter 11 filing might be in its future, according to a report in

The Wall Street Journal

.

In commodities, oil surged $5.57 to settle at $44.60 a barrel, while gold added $13.40 to settle at $884.30 an ounce -- both reversing from falling prices earlier in the day.

Longer-dated U.S. Treasury securities were recently falling. The 10-year note was giving up 1 17/32 to yield 2.2%, and the 30-year was down 3 08/32, yielding 2.7%. The dollar was stronger against the euro and the yen, and weaker against the pound.

Overseas, the FTSE in London edged higher, and the Hong Kong's Hang Seng ended the day with gains.

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