You shouldn't draw big conclusions from the stock market during Christmas week, when trading volume declines.

With many traders on vacation, minor news about a company or the economy magnifies moves in stock prices.

But Wall Street's action on Tuesday and Wednesday presented a peek into 2006.

Simply put, the stock market seemed to favor higher oil prices and higher long-term interest rates--trends that should trouble investors and consumers.

Many professional investors learned a lesson this year, as energy prices bubbled higher. Oil-related stocks are a bigger part of many portfolios

Wall Street has always been addicted to the easy profits available in borrowing short-term money to make long-term loans, as long as long-term rates are higher.

Last week, I commented that two big imponderables investors face in the new year are energy prices and the Treasury yield curve--the difference between rates on long-term T-notes and short-term T-notes.

Tuesday's brief inversion of the curve--short-term interest rates registering a higher number than long-term rates--hasn't happened since 2000.

Investors who lend money for a long period normally demand a higher return than short-term lenders to compensate them for risks inherent in the passage of time.

Tuesday's inversion amounted to less than one one-hundredth of a percentage point. Unless the inversion becomes deeper and entrenched, signaling a recession, investment managers are unlikely to reconsider their 2006 strategies.

"Unless there's a 2 percentage-point difference, I don't think it's going to affect anything," said Chicago money manager Carl Birkelbach.

Tuesday's inversion that so troubled Wall Street was caused by a decline in long-term rates, which should be good news for ordinary investors.

A second factor in Tuesday's stock market sell-off was a slide in oil and natural gas prices and energy stocks--again, a good-news story for most investors and consumers.

Wednesday's stock market recovery was accompanied by increases in long-term rates and energy prices.

The stock market in 2005 saw historically low volatility in the face of numerous problems: Iraq, hurricanes, higher interest rates, record high oil prices, and record federal budget and trade deficits.

"The market has withstood an immense amount of bad news this year," said Birkelbach. "The market has shown strength by holding up."

The question for 2006 is whether equanimity will remain the byword of investing. A clash between Wall Street and Main Street over interest rates and energy prices would suggest otherwise.

Wednesday's action: Wall Street crept toward the exits, as another three-day holiday beckoned.

Oil traded above the $60-a-barrel mark in New York futures trading for the first time in two weeks.

Upbeat reports from retailers and a stronger-than-expected reading on consumer confidence helped stocks stabilize after Tuesday's tumble.

The Dow Jones industrial average added 18.49 points, to 10,796.26. Higher crude oil prices in the futures market helped lift major oil company stocks.

Exxon Mobil, a component of the 30-stock Dow industrials, rose 38 cents, to $56.25.

Exxon Mobil, Chevron and ConocoPhillips were three of the top four gainers in the Standard & Poor's 500 index. The index rose 1.63 points, to 1258.17.

Crude oil for February delivery settled $1.66 a barrel higher, at $59.82, after trading above $60 earlier in the session.

The 10-year Treasury yield, at 4.37 percent, inched back above the 2-year yield, at 4.36 percent.

Technology stocks continued their recent sideways move. The Nasdaq composite index gained 2.05, to 2228.94. The Russell 2000 index of small-company stocks rose 3.50, to 680.08.

New York Stock Exchange trading volume totaled 1.06 billion shares. Winning stocks outnumbered losers 2-1 among NYSE-listed issues.

Nasdaq trading volume reached 1.18 billion shares, as winners topped losers about 8-7.

Gold futures climbed to a two-week high, up $6.20 an ounce, to $516.30. Traders speculated that central banks in China, Russia and Argentina planned to boost their gold reserves.

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bbarnhart@tribune.com