Wall Street ended 2013 with its positive momentum intact, advancing in its final trading day of the year on the back of positive consumer confidence data.
The S&P 500 rose 29.6 percent over the year, its best annual performance since 1997, while the Dow climbed 26.5 percent in its best year since 1995. The Nasdaq jumped 38.3 percent, its best year since 2009.
Both the Dow and the S&P 500 finished the final trading day of 2013 at record closing highs.
In a sign of improving sentiment, the CBOE Volatility Index or VIX fell 23.9 percent over the year, the biggest annual drop for the so-called "fear index" since 2009.
All 10 S&P 500 sector indexes ended the year with gains as investors rode the Fed's extraordinary stimulus in a year that had only the slightest of hiccups. Wall Street even weathered a partial shutdown of the U.S. government, as well as the recent announcement that the Fed would trim its monthly bond purchases in response to an improving economic picture.
"This has been a terrific year, with all the concerns we had in January (2013) proving unfounded, and with current economic growth giving us a strong outlook for 2014," said John Carey, portfolio manager at Pioneer Investment Management in Boston.
Trading volume was once again light in U.S. markets, which will be closed Wednesday for the New Year's holiday. Still, investors found reasons to buy after a read on consumer confidence rose more than expected in December.
The S&P/Case-Shiller composite index of home prices in 20 metropolitan areas gained 0.2 percent in October from September, but posted the strongest annualized gain in October in more than seven years.
"There's been a generally positive trend to news, including the confidence report, which bodes well for conditions next year and gives us really no reason to sell," said Carey, who helps oversee $220 billion in assets.
About 63 percent of stocks traded on the New York Stock Exchange closed higher for the day, while 55 percent of the shares traded on the Nasdaq ended in positive territory.
The Dow Jones industrial average gained 72.37 points, or 0.44 percent, to end at 16,576.66. The Standard & Poor's 500 Index advanced 7.29 points, or 0.40 percent, to finish at 1,848.36. The Nasdaq Composite Index rose 22.39 points, or 0.54 percent, to close at 4,176.59.
The Dow also touched an all-time intraday high of 16,588.25 on Tuesday, while the S&P 500 set a record intraday peak of 1,849.44.
In the fourth quarter, the Dow rose 9.6 percent, the S&P 500 gained 9.9 percent and the Nasdaq climbed 10.7 percent. In December alone, the Dow advanced 3 percent, the S&P 500 rose 2.4 percent and the Nasdaq shot up 2.9 percent. It was the fourth straight monthly rally for all three.
Gains in the year were led by consumer discretionary stocks, with the sector index up 40.4 percent. The sectors with the slimmest gains of the year - telecom, which rose 6.6 percent, and utilities, up 16.5 percent - are both considered defensive groups.
Among specific names, Netflix Inc was the S&P 500's biggest gainer, soaring 295.6 percent. Newmont Mining was the index's biggest loser, falling 50.6 percent in 2013. Only 38 stocks in the S&P 500 ended the year in the red.
Few investors expect 2014 to deliver the same scale of returns. According to the most recent Reuters equity poll, the S&P 500 is seen rising to 1,925 by the end of 2014, which represents an upside of 4.1 percent from current levels.
In the corporate arena, Hertz Global Holdings Inc surged 10.5 percent to close at $28.62 after the company said it had adopted a one-year shareholder rights plan in response to "unusual and substantial activity" it has observed in its shares.
Marvell Technology Group Ltd jumped 4.5 percent to end at $14.38 after private equity firm KKR & Co LLP reported a 6.8 percent stake in the chipmaker, according to a regulatory filing.
Twitter Inc broke its steep two-day losing streak, gaining 5.2 percent to close at $63.65. The stock's price had tumbled 17 percent between Thursday and Monday.
About 4.31 billion shares traded on all U.S. platforms, according to BATS exchange data, well below the December average of 5.89 billion shares.