Investors call it the "January barometer." According to the Stock Trader's Almanac, a gain in the Standard and Poor's 500 stock index over the first five days of January has led to annual gains nearly 90 percent of the time.
"All of the forecasts come out of Wall Street, and those expectations for the year give January a nice indicative effect of what the year will look like," said Jeffery Hirsch, the editor of the Stock Trader's Almanac.
Signs that the economy is improving pushed stock indexes higher on the first trading day of the year. Manufacturing activity and construction spending both rose more than analysts were predicting.
The Institute of Supply Management's index of manufacturing activity rose in December for the 17th straight month. Separately, the Commerce Department said construction spending rose 0.4 percent in November.
The Dow Jones industrial average rose 93.24 points, or 0.8 percent, to close at 11,670.75, its highest close since Aug. 28, 2008. The index had been up as many as 134 points earlier in the day.
The S&P 500 gained 14.23, or 1.1 percent, to 1,271.87. The Nasdaq rose 38.65, or 1.5 percent, to 2,691.52.
The gains were broad. All 10 company groups that make up the S&P index rose. Financial companies led the way with a 2.3 percent jump.
Treasury prices fell as the better economic news weakened demand for low-risk investments. The yield on the 10-year Treasury note, which rises as its price falls, moved up to 3.34 percent from 3.29 percent late Friday.
Bank of America Corp. shot up 6.4 percent to $14.19 after the bank settled a dispute with Fannie Mae and Freddie Mac over soured mortgage investments. That was the best performance among the 30 stocks that make up the Dow index. Intel Corp. had the largest fall, losing 0.9 percent to $20.85.
Small companies, which are considered riskier investments, surged. The Russell 2000, which tracks the performance of smaller stocks, jumped 1.9 percent. That's nearly twice as big as the gain posted by the Dow, which tracks large companies.
That, too, could be part of a historical trend. In a pattern known as the "January effect," smaller companies tend to do better early in the year than large ones. Some of that has to do with traders buying smaller companies early in the year after selling stocks they lost money on in December in order to reap tax benefits, Hirsch said.
In corporate news, Goldman Sachs Group Inc. gained 2.9 percent to $173.05 after the New York Times reported that it bought a stake in Facebook in a deal that valued the social-networking company at $50 billion. Facebook remains a private company, though its shares are traded on private stock exchanges.
Stocks rose throughout Europe earlier in the day after a report showed that manufacturing in countries that use the euro expanded faster than analysts had forecast. The Euro Stoxx 50 index rose 0.6 percent. Benchmark indexes in France and Belgium each rose more than 2 percent.
The dollar edged up 0.2 percent against an index of six heavily traded currencies.
Stocks in the U.S. ended mixed on Friday, the last day of trading in 2010. For many investors, 2010 turned out better than expected. Every major stock market index in the U.S. increased by double digits.
The S&P 500, the market measure used by most professional investors, returned 15.1 percent after dividends. Historically, the index has returned an average of 10.01 percent a year, including dividends.
Stocks ended 2010 especially strong. The S&P gained 20 percent over the last four months of the year, capped by a 7 percent jump in December.
On Monday, rising stocks outnumbered falling shares three to one on the New York Stock Exchange. Consolidated volume was 4.4 billion shares.