NEW YORK (CNN/Money) -
Wall Street ended an upbeat year not with a bang, but a whimper, in quiet New Year's trading Friday.
The Dow Jones industrial average (down 17.29 to 10,783.01, Charts), the Standard & Poor's 500 (down 1.63 to 1,211.92, Charts) index and the Nasdaq composite (down 2.90 to 2,175.44, Charts) all lost a few points.
Volume was very low on the last trading day of the year. Equity markets were open for normal trading hours, while U.S. Treasury markets closed early, at 1 p.m. ET. Commodities markets were closed.
The last week of the year was pretty flat for stocks, nonetheless the year overall was fairly upbeat. For the week, the Dow closed slightly lower, while the Nasdaq and the S&P 500 closed slightly higher.
The major indexes all ended higher for the second year in a row, thanks to an end-of-year rally that began around a few weeks before the presidential election.
"For the first nine months of the year, you had a leveling, a digesting of the rampant gains of 2003," said Bryan Piskorowski, market analyst at Wachovia Securities. "Starting in mid-October, it got better."
In 2004, the Dow rose 3.1 percent, the Nasdaq rose 8.6 percent and the broader S&P 500 rose 9 percent.
"It didn't look like anything much was going to happen in the middle of the election rhetoric, but we ended up seeing a pretty good advance after all," said Ram Kolluri, chief investment officer at Global Value Investors.
The gains all happened in the fourth quarter as worries about a repeat of 2000's undecided election proved unnecessary and oil prices peaked.
"I think everyone thought there was going to be an election overhang and as a result of that, a lot of people had money sitting on the sidelines," said Joe Sunderman, market analyst at Schaeffer's Investment Research. "The fourth quarter is generally pretty strong for stocks, and that proved true this year as well."
The peaking of energy prices and evidence that the economy was not heading into another recession also added to an end of year run up.
Winners and losers
The Russell 2000, which measures small caps, rose nearly 15 percent in 2004, reflecting the great year small caps have had relative to the broader market.
"Your large cap generals didn't really participate until the last few months (of the year), while the small and mid cap names have been doing well all year," Wachovia's Piskorowski said.
(For a more detailed look back at the stock market in 2004, click here.)
Surging crude prices propelled oil and oil services stocks, making energy the best performing sector of 2004.
Health care was the worst-performing sector of the year. Investors stayed away from big pharma ahead of the presidential election on worries that a John Kerry presidency would mean increased government regulation and swifter legislation to allow the re-importation of drugs from Canada and other nations.
The sector also contended with more stock specific issues, such as Merck's withdrawal of Vioxx on safety concerns. (For a look at how the main S&P sectors performed this year, see the chart.)
In terms of individual stocks, Autodesk was the S&P 500's biggest gainer, up more than 209 percent, while Ciena was the biggest loser, down more than 50 percent. (For a look at the best performing S&P 500 stocks this year, click here.)
A peek at '05
Looking forward, analysts are generally cautiously optimistic about the very early part of the year, but a bit more skeptical for later in 2005.
Although interest rates rose during 2004 and are expected to continue rising in the year ahead, they remain not far from historic lows. That, paired with an economy that continues to chug along nicely, should continue to create a fertile environment for stocks, Global Value's Kolluri said.
"You've got the warm and toasty economy, or the Goldilocks economy, still in place," Kolluri said, referring to a middle ground in which the economy is perceived as being not too hot, not too cold.
However, many challenges remain, he added, including the still weak U.S. dollar, the budget deficit, the ongoing events in Iraq, and concerns about stock valuations having gotten too lofty relative to earnings, which are expected to continue slowing.
"Heading into next year, I think there's a lot of concerns out there, in terms of the weak dollar, in terms of earnings slowing down," Schaeffer's Sunderman said. "That's leading us to be fairly bearish in our projections for next year."
Friday's market
In Friday's corporate news, Pfizer (down $0.12 to $26.89, Research) said that it has received the OK from U.S. regulators to market its nerve pain drug, Lyrica.
Drugmaker Eli Lilly (down $0.75 to $56.75, Research) was under pressure on reports that U.S. regulators are investigating possible links between its antidepressant drug Prozac and violent or suicidal behavior.
Steel stocks popped, recovering from Thursday's drubbing. The sector had been hit hard on a report that indicated Chinese demand is slowing. Gainers included AK Steel Holding (up $0.58 to $14.47, Research) and Oregon Steel Mills (up $0.95 to $20.29, Research).
Market breadth was positive and volume was anemic. On the New York Stock Exchange, advancers beat decliners by 8 to 7 on volume of 783 million shares. On the Nasdaq, winners topped losers by a narrow margin on volume of 1.35 billion shares.
Treasury prices rose, pushing the yield on the 10-year note down to 4.22 percent from 4.25 percent late Thursday. Bond prices and yields move in opposite directions.
In currency trading, the dollar fell versus the yen and recovered some against the euro, after hitting all-time lows versus the European currency periodically during the month. Overall, the greenback ended the year at 9-year lows versus a basket of other currencies.
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