>> tom: a year of double-digit returns for shareholders. wall street's big stock indices clock their second straight year of gains. will it continue next year? >> the catalyst should be that we are putting the recession of 2008 and 2009 behind us. investors are still worried about a double dip. we don't think there will be a double dip. we think the economy will continue to grow in 2011. >> tom: we wrap up the trading year and get you ready for 2011. you're watching "nightly business report" for friday, december 31. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:

this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening and thanks for joining us. susie gharib is off tonight. wall street wrapped up 2010 with some sizable gains. all of the major stock indices marked double-digit rallies for the year: the dow up 11%, the nasdaq up 17%, and the s&p 500 up 13%. the big questions this new year's eve-- where do stocks go from here? and how should investors position themselves in the new year? erika miller asked the pros. >> reporter: the hats are out,

and so are the noise makers as the nation gets ready to ring in the new year. the good news is 2011 could be another prosperous year for stock investors. bank of america merrill lynch strategist david bianco is predicting an 11% gain for the s&p 500. >> the catalyst should be that we are putting the recession of 2008 and 2009 behind us. investors are still worried about a double dip. we don't think there will be a double dip. we think the economy will continue to grow in 2011. >> reporter: but wells fargo strategist scott wren is less optimistic, expecting the s&p 500 will rise only about 3% next year. >> we are not going to see the unemployment rate drop very dramatically next year, and so i think the market is prepared for a year where you have modest growth, modest inflation, modest business capital spending, that type of thing. >> reporter: in the middle is kate warne of edward jones, who sees the market rising in the high single digits. she recommends investors focus on stocks paying high dividends. >> look at the companies paying dividends.

the reason is that that says they've got the cash; you are getting the dividend. in many cases, they are starting to increase dividends. and for many investors, that's the real way that gives you long-term wealth generation. >> reporter: others think the path to wealth generation is finding stocks poised for big gains. david bianco recommends buying shares of u.s. companies that make much of their profits overseas. >> the ones i like the most within the s&p are the ones with the most global exposure-- technology, energy, industrials, materials. those four sectors, they're more sensitive to the global economy than they are to the u.s. economy. >> reporter: while they may disagree in their forecasts, these strategists warn markets will be volatile. some are worried about what will happen when the federal reserve stops buying bonds, withdrawing support for the economy. there's also the possibility of the return of european debt concerns. >> obviously, they haven't gone away. and i think really, in 2011, we are going to continue to see more volatility caused by

foreign issues, like sovereign debt in europe. >> reporter: but for tonight, there's reason to celebrate. the end of 2010 marks the largest three-year advance for stocks in over a decade with a more than 50% increase in that time. erika miller, "nightly business report," new york. >> tom: here are the stories in tonight's "n.b.r. newswheel." stocks were mixed on this last day of trading. the dow rose seven points, the nasdaq fell ten, and the s&p 500 was off a fraction. holiday trading volume continued. big board volume was under 600 million shares. nasdaq volume-- just over one billion shares. gold prices went out at a new high, closing at $1,421 an ounce, up $15.50 on the day, and up almost 30% for the year. oil prices also headed higher, ending the day at $91.38 a barrel in new york. for the year, oil prices were up 15%. and as it rang in the new year, estonia was added to the list of countries using the euro.

the nation said good-bye to the kroon at midnight and adopted the euro. the european commission predicts the move will stabilize the economy of the small baltic nation. still ahead, drawing some conclusions about the economy, an illustrated take on the year that was and the year to come with david gillette's "ink-o-nomics." a lot of americans took the week off from work and spent some time hunting for deals at malls and at auto dealerships. the week after christmas is traditionally one of the busiest. this year rebates, 0% financing and pent-up demand are helping make it a blockbuster. as diane eastabrook reports, many dealers think they can ride the momentum into 2011. >> reporter: sam cuprevich slides behind the wheel of a ford focus for a test drive. he needs to buy a new set of wheels and soon. >> well, the car i was driving before died, so i need a new one. >> reporter: with deals galore and many consumers in the buying spirit, auto dealers are

wrapping up what is turning out to be a fairly successful 2010. the auto industry is expected to sell about 11.5 million vehicles this year, up from the 10.5 million it sold last. auto analyst jesse toprak from industry tracking firm truecar.com points out an interesting correlation. >> if you look at the stock market, it's up 10%, and new vehicle sales is up exactly 10%. the stock market actually sets the mood for car buying. even if you don't have a lot of money invested, that gives you a green light or red light to go make a purchase. >> reporter: still, necessity is driving many sales. americans are holding on to cars up to two years longer than they did before the recession. ford dealer roger rudin says that's created pent-up demand for vehicles and a new dynamic for dealerships. >> years ago, we would be able to sell about 70% to 75% of the cars we would take in in trade. now, we're able to sell maybe about 30%. >> reporter: trucks and sport

utilities have been especially hot in recent months. in fact, both have seen sales increases in the double digits year over year. that could change though if gas prices keep rising. toyota dealer kurt schiele sees consumers switching seamlessly from trucks to cars if prices at the pump skyrocket. >> our core cars in the toyota lineup are cars like the prius, the corolla, the camry-- that really make up the big majority of our sales, because toyota does such a great job with the passenger car market. and cars like this sell well to begin with, but add the fuel prices and they'll sell even better. >> reporter: dealers say the traffic they've seen in showrooms in recent weeks gives them hope 2011 will be an even better sales year. diane eastabrook, "nightly business report," elmhurst, illinois. >> tom: and one thing dealers have high hopes for next year-- electric cars. there are currently 50,000 customers on waiting lists for the chevy volt and nissan leaf. the vehicles are tough to get. nissan has sent only 100 leafs to the u.s. so far from its

factory in japan. the volt is assembled in detroit, and g.m. predicts it will sell 10,000 of them next year. that's a fraction of what g.m. sells in other popular models, though. for instance, more than 187,000 malibus were sold in the first 11 months of this year. >> tom: the final day of the year closed out on a weak note, but certainly not 2010. stocks are just off two-year highs.

let's get you updated in tonight's "market focus." the dow industrials was the lone major stock index to see some gains today, climbing to a new post-recession high. the dow was up 11% this year, but not without some wild swings. the dow saw a february sell-off give way to a spring rally. but that was hit by european debt worries, the gulf oil disaster, and then the flash crash in early may. by late august, the index started climbing again. the nasdaq was stuck in a range during the spring and summer. it was tripped up in november thanks to an earnings warning from cisco, but tech stocks quickly regained their footing. and check those mutual funds designed to mimic the s&p 500. are they up at least 13%? that was the gain this year. the index is close to its highest level since labor day of 2008. beyond the broad-based big-cap stocks, other notable moves this year came from the russell 2000

small-cap index up more than 25%. dow transports gained almost 25%. and the u.s. dollar index saw a modest gain. while the dollar has moved lower this year, oil prices are near two year highs but that clearly didn't hurt transportation stocks. volume and news flow may have been light today, but there was a new merger rumor and a new deal. the rumor involves sony and imax, the company behind the giant-movie screens. imax isn't talking, but a british newspaper reports sony is thinking about a $40 per share offer. some analyst point out it brings up possible anti-trust issues since the u.s. bans movie

studios from owning movie theaters. still, imax is a canadian company and licenses its technology instead of owning theaters. imax shares saw a big pop on the rumors, up 4.5% on a big jump in volume. this is a ten-year high for shares. the deal that is confirmed is cvs/caremark expanding its medicare prescription drug insurance business. cvs is paying $1.25 billion for the medicare part-d business of universal american. the deal more than doubles cvs's medicare drug operation. their share prices were moving in opposite directions. the buyer, cvs, saw its stock fall a fraction. but universal american shareholders saw a 40% jump, up to a three year high. and that's tonight's "market focus."

>> tom: from the depths of the financial crisis have come fewer survivors. but among those that saw opportunity in the face of near- collapse was bank of america. while the economy was in a free- fall in 2008, bank of america spent about $55 billion to buy first countrywide, and then merrill lynch. but b-of-a is worth less today than before those deals. we spoke with greg farrell, author of "crash of the titans," about the bank of america buyout of merrill lynch. he's also a reporter for "the financial times." we began by asking if b-of-a shareholders are better off today owning merrill lynch. >> i think definitely not. given the dilution of the shares that took place in '08 and '09, a schaeffer bank of america, which you opened in the summer of 2008, is worth substantially

less. it's not paying a dividend to speak of, just a fraction of what it was before. it's going to take some time for the deal to pay off financially for the shareholders. >> tom: while merrill's downfall as you describe in the book, was really that over11 ranled balance sheet. it was way too committed to too many mortgage security deals and those deals really went south pretty fast. do executives of b. of a. now have a better grasp on their risk? >> yes. i think risk has improved at bank of america. unfortunately, it's taken some time and as we've seen with countrywide, where bank of america is having a lot of issues today, i think at the time, bank of america management in 2008 really didn't understand what they were buying, first with countrywide and then with merrill lynch. >> tom: one of the things that came out, merrill was accused of buying its own mortge deal and this is how the transaction basically worked. one unit inside merrill lynch would package up mortgage securities and sell them to another group inside merrill

lynch so merrill would pay merrill to buy from merrill. is this kind of culture still alive within merrill lynch, now part of b. of a.? >> i would say that culture is not. that story reported in pro publica, i think captures what was going on at merrill lynch for several years. and the interest in trying to generate revenues up front led to some short-term purchases in this amassing of a $30 billion position that eventually sunk the firm. >> tom: through this crisis you've seen it in your reporting normal people have wondered why no one has gone to jail in all of this. personal reputations have been hurt like the skfdz you detail in your book but not necessarily corporation reputations. why do you think that is? >> first of all, it's very difficult from a criminal prosecution point of view. you can't criminalize bad business judgment. you can hound someone out of a job and they can become, you know, branded with the, you know credited for the fall of merrill

lynch for the rest of their days. that's not necessarily a crime. secondly, in the case of merrill lirn, its acquisition by bank of america probably reduced the urgency of finding someoneas fault. there was a lot more urgency, being put on lehmann brothers but the fact that there have been no criminal prosecutions at lehmann. it's very difficult, as prosecutors saw with several bear sterns managers acquitted of charges, it's very difficult to make these complex cases stick. >> tom: greg, i want to leave back where we began and that is what the market has said about this deal? as i mentioned earlier, bank of america is worth less today than when it did the merrill deal. back then b. of a.was worth $150 well and now it's $125 billion. does the market have something wrong here or do you think it's essentially gotten this right by writing down all of this value? >> well, i think the-- one of the problems with bank of

america pre-2008 was the perception among most investors that it was pristine, that it was protected from the troubles that engulfed wall street. so just the fact we're seeing the problems of countrywide being manifested now is a further sign of concern among investors, some investors, is there another shoe to brop. >> tom: greg, thanks so much. ourp guest this evening is greg farrell of the "financial fimz" author of "crash of the titans." >> tom: here's what we're watching for next week: our friday "market monitor" guest is bernie schaeffer of schaeffer's investment research. on the economic calendar, a host of numbers, including november construction spending, december auto sales, and the december employment report. monday, we go beyond the scoreboard for a look at the recent blizzard's impact on the business of sports. another loss for a cigarette giant in court. a judge has ordered r.j. reynolds to pay a connecticut woman $4 million in punitive damages. that's in addition to the

$8 million a jury had already awarded her in a trial. the jury found the tobacco firm's products were dangerous and defective and led to massive health problems for the woman. no comment from reynolds on the additional award, but it previously said it intended to appeal the case. meanwhile, if your new year's resolution is to lose weight, the fda has one way not to go about it. the agency warns consumers about what's called fruta planta weight loss products. tests show they contain a drug that's been pulled from the market for safety reasons. the fda says if you're using it, stop immediately, and throw the stuff out in a sealed container. euu

>> tom: the new year begins with lots of confidence in the stock market and a bullish historical precedent. but that may lead to a hangover as the year gets underway. so says tonight's "market monitor." he's sam stovall, chief investment strategist at standard and poors. he joins us from new york. sam, always great to see you. happy new year to you. >> happy new year, tom. >> tom: historically the first month of the year, january, has been pretty good to be a stock investor, especially after a midterm election. we want to take a look at the returns that you've seen historically on the index. 4.3%. and the odds of that rally, 95%. so what's the risk of the

hangover? >> well, the risk of the hangover is that we're going into the new year with very high investor optimism. so i would not be surprised if we do see a bit of digestion of the recent advances that we've seen since the august low. but because of the encouraging data that we've seen regarding the market's performance in january, of course it's no guarantee, but i would then say it's best to use the weakness as a buying opportunity rather than a reason to bail out of stocks. >> tom: let's take a look at where some buying opportunities might happen the most favorable first-quarter, consumer discretionary, information technology and energy each putting up better than 2% returns in the first three months of a given year. why these three, do you think? >> well, i think traditionally that you go into a new year with optimism. investors are looking for four quarters down the road. they've really in many cases are vnot even heard the fourth quarter results. so basically we have a lot to look forward to, and as a result investors gravitate towards the

higher beta, more cyclical-oriented stockses rather than the more defensive areas as we've seen with health care, telecom services,, and you tiltss. >> tom: year, i want to get deeper into that in some sectors that are generally the least favorable areas in the first three months of the year. you mentioned utilities, telecom services and health care. these interest also usually areas that tend to pay higher dividends. why do investors usually turn away from them in the first of the calendar year? >> i think again it's because investors basically are either on one side of the ship or the other. they're usually in the cyclical areas. those that are likely to provide the biggest purn to the beginning of the new year because of all the optimism towards the better earning growth that we're likely to see for the coming four quarters, et cetera. and investors don't tend to gravitate towards the defensive areas until the summertime following along the old sell in may and go away adage. >> tom: that's side sadd. you've been talking about

cyclicals for a year. this was your forecast back then. >> we're going to likely see some of the cyclical sectors out-perform the defensive areas such as telecom, such as utilities. they don't really offer the growth prospects that other areas such as technology, as well as industrials or energy, would offer. so i would stick with the cyclical sectors right now. >> tom: that trio that you mentioned, here is the 2010 performance industrials in energy each beating overall market, nice double digits. would you still stick with these in 2011? >> in the early part of the year i think it could end up being a year of two halves where early on, we're going to see a continuation of the momentum, materials, industrials, information technology. we currently have overweight recommendations. we have a lot of favorable recommendations in energy and consumer discretionary as well. but as we move into the third year of a bull market, investors do tend to gravitate toward larger stocks and they do tend to embrace more of the defensive

areas as they begin to question the sustainability. >> tom: what's the least weighting you have looking at 2011, an area you're advising folks to either reduce exposure or avoid all together? >> right now, it's health care. our feeling is that with a lot of blockbuster drugs continuing to come off patent with the new drug pipelines remaining fairly anemic and with a lot of the health care bill up in the air, i think investors are basically going to be avoiding this area of uncertainty. >> tom: any discloses tonight. >> no discloses, tom. >> tom: happy new year. >> to you as well. >> tom: it's our market monitor to end the year, robert stovall, can standard & poors. over the past few weeks, we've looked back at 2010 and ahead to 2011. now, something different for our last take on that. here's another installment of "ink-o-nomics" with david gillette, an award winning illustrator and essayist at twin cities public television.

>> okay, here it is, the global economy chugging across the finish line of another year. boy, oh, boy, what a year it's been. so, robert zoellick, president of the world bank, how would you verbally encapsulate 2010? >> uhm, a year of fra jillity. >> fragility. good word choice. i've been trying to fix the walkway outside my house for 18 months but unfortunately my strategic cash reserves have been depleted by other priorities. what is the prognosis? is there more financial flexibility in my future? >> in the developing world, you've already had some pretty strong growth and recovery. >> okay, good to hear. but in all fairness, i'm more concerned about the reverse developing world leading to my garage. how about here in the u.s.? what can we expect in the next 365 days? >> well, i hope it will be a year of recovery. i think the economic forecast still suggests it's going to be modest. but i think if the right

policies are put in place, these can become the building blocks of future growth. >> ah, yes, future growth, that most-elusive of creatures. i wonder, what can we do to avoid scaring it away? >> there's always the danger the internet system could slip back into problems we saw in the 30s, forecast, protectionist. >> protectionist, interesting. maybe in the name of economic recovery it's not the best time to wrap ourselves in the flag and lock the doors. if only domestic policy was that easy. what should we be booking for in washington? >> i think now with the republican house, more even senate, president obama, the real challenge will be can the president and the congress come together? >> whoops, i forgot-- there's an even more allusive creature-- bipartisanship. i guess we'll just have to wait and see on that front. until then, i do have news. as of today i've officially

saved enough money to fix my walkway which may not be a universally recognized economic metric but it's good to know if the global economy pays a visit it won't get stuck in the mud, at least not between the house and the garage. happy new year, everybody. >> tom: finally tonight, a programming note. if you're watching us in los angeles, on monday, we move to a new home. you can watch "nightly business report" on kvcr and klcs each weeknight at 6:30 p.m., pacific time. and of course, you can always watch our streaming video on our web site, nbronpbs.org. that's "nightly business report" for friday, december 31. i'm tom hudson. good night, everyone. have a safe and happy new year. we'll see all of you again next week. "nightly business report" is made possible by:

this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org >> be more. pbs.