"From all indications available, the year should begin well," said Gregori Volokhine, at Meeschaert Capital Markets.
"There are real signs that monetary policy and fiscal policy are having an effect on the economy," the analyst said. "There's a wave of optimism which began in the markets several months ago and which now is being reinforced by macroeconomic numbers."
Over the past week, the Dow Jones Industrial Average barely budged, slipping 0.03 percent to close Friday at 11,577.51 points.
The tech-rich NASDAQ dropped 0.48 percent to 2,652.87 points while the Standard & Poor's 500 index, a broad measure of the market, added 0.07 percent at 1,257.64 points.
The blue-chip Dow index, which gained 11.02 percent in 2010, added more than 5.0 percent in December alone. On Wednesday it finished at its highest level since August 2008.
"Investors will probably look back on this December as one to remember," said Frederic Dickson at DA Davidson & Co.
"Big year-end rallies often fizzle out shortly after the beginning of a new calendar year," Dickson cautioned.
"While we believe the economic landscape will continue to support higher stock prices in 2011, the market now appears technically extended from a longer-term perspective."
The final week of 2010 was marked by extremely thin volumes. Traditionally quiet because of the Christmas and New Year holidays, this year's lull was even deeper after a blizzard along the East Coast kept many traders away from their offices.
Trading sessions were listless and final results were weak.
The Dow, for example, slipped 0.14 percent Thursday, despite three positive US economic indicators: new claims for jobless insurance benefits fell to their lowest level in two and a half years last week, pending home sales unexpectedly rose in November, and the Chicago ISM index showed manufacturing activity at its fastest pace in more than 20 years.
"A lot of investors are waiting for the new year to see what the December employment report looks like and to wait until the fourth-quarter earnings reports start to be released," said Hugh Johnson of Hugh Johnson Advisors.
Stocks face a calendar crammed with economic releases, capped Friday by the closely watched unemployment and job creation report.
The labor data in previous months has been grim, leaving the unemployment rate near 10 percent as the economy struggles to recover from recession.
"That's going to be the test," said Volokhine. "This number needs to confirm that the jobs market is improving."
Among other economic numbers slated are construction spending and the ISM manufacturing index on Monday, industrial orders Tuesday and the ISM services index Wednesday.
The Federal Reserve is set to publish the minutes of its last policy-setting meeting Tuesday.
"With low interest rates, improving economic data and healthy projected earnings growth, the outlook for 2011 is relatively bullish," Briefing.com analysts said in a client note.
"Although broad market valuation remains reasonable, with stocks at two-year highs, sentiment near a bullish extreme and several macro risks still in the picture, it may be a bumpy ride again in 2011."