) -- Unless you are a food inflation hawk who lives and breathes based on a reading of the monthly farm price index from the U.S. Department of Agriculture, and the direction in soy, sorghum, sunflower or strawberries is your trigger for a buy or sell decision, the last trading day of the year should go out with a whimper.

Indeed, with Friday's economic calendar offering only the monthly agricultural report, and many traders having already checked out and into a Caribbean resort, the last trading day of the year should be as light in volume as 2011 has been heavy with concerns about European sovereign debt and Chinese inflation. Indeed, it's a good time to reflect on where the markets have been and where they are poised headed into the New Year.

It's been

quite a year for the markets.

In fact, some traders say that we can toss out the past few weeks of trading, not just Friday. "There's not a great deal to take away from the last few weeks. The price action doesn't have much action behind it. It's been low liquidity," CRT Group senior government bond strategist Ian Lyngen said.

Traders seem to agree that the next major trading event will be next Friday's nonfarm payroll report and the read it offers on the U.S. labor market.

"Next Friday's nonfarm payroll report will be the first tone-setting data release. Investors don't flip a switch. I expect flows to trickle in during the first few weeks, and so we might as well wait until the nonfarm payroll report passes to get a sense of the near term bias on the labor front, that flows into stability in housing and the broader economy," Lyngen said.

The recent anecdotal evidence for the U.S. economy has been a cause for cautious optimism. Thursday's

pending home sales surprise to the upside added to recent improvement in existing-home sales, even if the S&P/Case-Shiller report earlier this week showed that home prices

will remain challenged.

"The housing market is showing some strength here, but we still have an overhang of unsold homes and home prices are still low. Still, that's an environment where some buyers take advantage. It's potential demand, and it's not being supported by a federal tax credit anymore either. Housing is showing signs of life, but it's too early to describe it as substantial," said Gary Thayer, chief macro strategist at Wells Fargo Advisors.

The labor market recovery was given one more piece of support by the four-week average in the initial jobless claims hitting

a level not seen since 2008 on Thursday. The manufacturing sector continues to do its part -- Thursday's Chicago PMI showed that the heart of American manufacturing, the Midwest, continues to chug along.

The markets rallied on Thursday, with the

Dow Jones Industrial Average

finishing up by 1.1%, closing at 12,287 -- bringing its year-to-date gain to 6% -- and the

S&P 500

finished up by 1.1% also, closing at 1263 -- bringing it back into the green, albeit barely, for 2011.

The U.S. economy is making a case for decent growth in 2012.

"One thing we have seen over the past few months is that investors are differentiating between healthier economies and weaker ones, and the U.S. economy is doing better than Europe, and as a result, the U.S. stock market is doing better," Thayer said.

It still will be the defensive-oriented equities, the dividend-yielding staples and utilities into which investors have been willing to put their money, but it's still a far better place for the U.S. economy and markets than was feared last summer.

"It's an important development," Thayer said. "Last summer everyone was afraid we would enter a recession, but we're seeing that the U.S. economy is more resilient and may not be as impacted by Europe as we thought. Growth may slow a little, but won't be derailed," he added.

Consumers aren't overreacting. The jobs situation is improving, and companies are cutting fewer jobs than earlier this year. The prices at the gas pump have moderated, too -- notwithstanding the

threats from Iran about the Strait of Hormuz. "Looking beyond the headlines, things aren't great, but things are OK," the Wells Fargo strategist said. He expects GDP of 2.2% from the U.S. in 2012.

CRT Capital's Lyngen said his general expectation for the first quarter is reasonable, though not gangbuster, type growth, similar to the fourth quarter.

"We're not growing at a pace that would lead to full employment and a real GDP back to the pre-crisis level, but we're starting to put some people back to work and it's a slow sideways grind," Lyngen said. He expects the


forecast for real GDP of 2.7% to be "a little optimistic."

"We do expect a quiet day," Wells Fargo's Thayer said of the last day of trading in 2011. But it's shaping up to be another volatile year for the markets in 2012.

Growth, if it comes, "won't come in a straight line," said Lyngen.

There are plenty of reasons for the caution:

The European Union still has to come up with a solution, and it's going to be a slow grind through 2012.

U.S. policy makers need to find a budget solution that doesn't require the kind of tax increases that curtail growth. It's also an election year, complicating matters.

The emerging giants like China and Brazil have to find ways to increase internal consumption as export markets slow, and that is a riddle that can take longer than any one calendar year to figure out.

Add to the slowdown in China the succession in North Korea and the saber rattling between the U.S. and Iran and all of the big, exogenous risks can't be discounted, or modeled. "We worry a lot about the big exogenous risks when an economy is growing slowly," Thayer said. "It's good to see the markets ending the year on a firm note, but people are not rushing to add risk," Thayer added.

The bottom line is that a disconnect between the market and the true state of the U.S. economy may linger throughout 2012.

"Clearly, if we are just looking at our economy, the stock market would be doing considerably better," said Thayer.

Earnings expectations for the S&P 500 have been revised downward significantly headed into the first quarter, and that provides upside opportunity, but it may not be opportunity that turns into a self-sustaining profit trend line.

"The U.S. economy may appear to be on solid footing, but given the headwinds of waning global demand and the issues in Europe, it could hurt growth further out, even if the first few quarters of 2012 are constructive," Lyngen said.

As the last bits of 2011 data, including Friday's farm price report, hit the history books, the markets are already moving on and pricing to expectations, and as we have seen in 2011 -- time and time again -- expectations are rolling.

-- Written by Eric Rosenbaum from New York.

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