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S&P 500's Strong December Start Pushing Stocks Toward Hot Year-End Finish

The month of December started out on a positive note yesterday (Wednesday) as the Standard & Poor's 500 Index climbed 2.16% on that first trading day of the month. The Dow Jones Industrial Average rose 2.27% and the Nasdaq Composite was up 2%.

Wednesday's gain was followed by a 1.28% rise in the S&P 500 Thursday – only the second time this year the index has climbed more than 1% two days in a row. Two-day consecutive gains of more than 1% have only happened nine times since the bull market started in March 2009.

And these handsome gains bode well for the rest of December.

This marks the third time this year that stocks in the S&P 500 gained more than 2% on the first trading day of a month. Over the last 50 years, that's happened on 25 occasions. Nearly two-thirds of the time – 62.5% to be exact – stocks go on to generate positive returns the rest of the month.

Decembers strong S and P 500 start pushing stocks toward hot year-end finish

The last time a month's first trading day gained more than 2% was earlier this year, in September. The 2.95% first-day jump was followed by a 0.91% rise on the second day, and 5.64% return the rest of the month.

As 2010 rolls toward its close, if December mirrors September, investors would be looking at a profitable end of the year.

A poll released Thursday by the American Association of Individual Investors (AAII) reported bullish sentiment was up to 49.66% from 47.4% last week. Investors showed interest in the retail industry this week after a strong start to the holiday sales season.

Analysts credit U.S. consumers starved for spending with boosting retail stocks, giving an upward nudge to the market.

"A lot of consumers are experiencing recession fatigue for having denied themselves," Sam Stovall, chief investment strategist at S&P Equity Research, told MarketWatch.

Stovall said strong retail numbers and news that the European Central Bank (ECB) is more likely to maintain its stimulus measures is giving "credence to bottom up earnings forecasts previously viewed as too optimistic."

Good news also came from the National Association of Realtors, which released its Pending Home Sales Index Thursday. The index jumped 10.4% to 89.3 based on contracts signed in October from 80.9 in September.

The report gave a boost to home-improvement retailers like Lowe's Companies Inc. (NYSE: LOW) and The Home Depot Inc. (NYSE: HD), which both climbed more than 5% Thursday.

"The economic data here for the most part over the last two weeks has been getting marginally better every time it comes out, so once you got all those sellers away," the market started to rally, Tom Donino, co-head of trading at First New York Securities, told The Wall Street Journal. "Now it looks like performance-chasing to the end of the year."

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