Markets are in for more tough sledding as the calendar flips over to February and stocks close out their worst January ever with no signs of reprieve from bad economic news.
Next week, investor focus will be on another round of earnings news and some important economic data, including the jobs report for January.
In the last week alone, more than 100,000 job cuts were announced by U.S. companies, and the expectation is that thousands more will be reported as companies issue earnings news in the week ahead.
Nearly a fifth of the S&P 500 companies report, including major pharmaceutical, media and consumer products companies.
Economists expect a loss of 525,000 non farm payrolls in January and an unemployment rate of 7.5 percent when the government's employment report is released Friday.
High on the agenda is the $820 billion fiscal stimulus package, passed by the House last week and under consideration in the Senate, starting Monday.
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Traders are also watching for news on the financial bailout and any developments in the Obama Administration's plans for a "bad bank," which could be formed to hold the banking industry's toxic assets. By the end of the week, that plan appeared to be less imminent than markets had hoped for, but a Treasury official said it remains one of many options in the mix.
The financial sector Friday fell 2.5 percent, giving the group a loss of 26.6 percent for January, its worst monthly loss ever.
Art Cashin, UBS director of floor operations, said stocks on Friday battled to hold the Dow 8,000 level and that is an important starting point next week.
"The story of the day is the Dow defending 8000, and if it closes lower it could be a sign we're going to have another leg down," he said late in the trading session.
The Dow, though, finished just at 8000, down 8.8 percent for the month. The S&P 500 fell 8.6 percent for the month to 825. Both indices turned in their worst January performance ever.
The Nasdaq was off 6.4 percent in January, finishing at 1476. According to data from Standard and Poor's, January has set the directional tone for the S&P 75 percent of the time.
The second worst year for the S&P 500 was 1970, when it was down 7.7 percent. Thomas Lee, chief equities strategist at J.P.
Morgan, said he thinks the market will trade in a "zig zag" pattern for some months to come, and he is not likely to be more constructive on it until July.
"When I talk to investors, the two most important things are restoring credit flow and having fiscal stimulus sufficient to jolt the economy," he said. "I'd be buying in a range of 750 to 800 (on the S&P) and you want to sell around 1000, or 1100. That's the range I see for the first half. I kind of think the downside will be more between February and May when we hit the low."
He said analysts' expectations for earnings have finally become more realistic and that is a positive. He said his favorite sector is health care, a group that has beat earnings estimates 85 percent of the time this quarter so far.
Lee said the markets could get some help from the Fed's plan to buy asset-backed securities on consumer loans.
"We have the consumer TALF (Term Asset-Backed Securities Loan Facility) launching in February, and I think that's going to be supportive of the idea that you need direct acquisition of assets. The Fed is offering low interest, non recourse loans to financial buyers, mostly hedge funds or asset managers, who can buy triple A, newly issued consumer asset backed securities," he said, adding this could help with auto sales.
"This facility will restore the issuance market, but the real test is whether that flow results in consumer spending," he said.
The markets are in for another busy earnings week.
On Monday: Humana, Mattel, Rockwell Automation, Sysco, AFLAC, Anadarko Petroleum and Plum Creek report.
Big pharma announces Tuesday, with Merck and Schering Plough. Also reporting that day are UPS,Archer-Daniels, British Petroleum, Cummins, Dow Chemical, Marathon Oil, Motorola, and Northrop Grumman.
Disney also reports after the bell that day, as does Yum Brands, Electronic Arts and Yum Brands.
Wednesday's reports include Time-Warner, Kraft Foods, Clorox, Sara Lee, Polo Ralph Lauren, Goodrich, ITT and Alcatel-Lucent.
Cisco reports after the bell that day, as does Sunoco, Visa, Prudential and Pulte Homes.
Duke Energy, Kellogg, MasterCard,Moody's, Cigna,Tenneco, Hartford Financial, JDS Uniphase and News Corp report Thursday.
On Friday, Aon, Biogen Idec and Weyerhaeuser report.
Besides Friday's jobs data, there's a bunch of major economic reports in the coming week.
Monday kicks it off with key ISM manufacturing data. Also, personal income and construction spending are reported that day.
The auto industry's January sales are released throughout the day on Tuesday. There are also pending home sales and housing vacancies Tuesday morning.
The ISM non-manufacturing data is reported Wednesday. ADP employment data, which traders watch as a preview of government jobs data, is also released Wednesday morning.
Thursday's data includes weekly jobless claims, productivity and costs and factory orders.
Consumer credit is reported Friday, in addition to the employment report.
"I'll be interested in the ISM data. The new orders are forward looking and they actually pointed to the collapse we had in business investment," said Michael Darda, chief economist at MKM Partners.
He said he will be looking at the ISM with an eye to revising his forecast for January jobs. He currently anticipates a loss of 450,000 non farm payrolls.
Darda said the shallower than expected decline in fourth quarter GDP of 3.8 percent may mean there is a bigger dip in the first quarter.
"The inventory swings are what make forecasting these numbers pretty difficult. You could see a massive inventory liquidation in the first quarter and have a minus four number on GDP," he said.
The dollar gained in the past week as gold also moved higher.
In the currency markets next week, traders will be watching rate meetings for the European Central Bank and Bank of England Thursday, and the U.S. jobs report Friday.
Boris Schlossberg, director of research at GFT Forex, said the Bank of England is likely to cut to 1 percent, but the ECB has signaled its next cut for March.
The dollar finished at $1.2805 per euro Friday, gaining 9 percent against the currency for the month. It was nearly 1 percent lower against the yen.
"People have stopped worrying about day to day issues and started worrying about the big macro issues, and the primary macro issue on everybody's mind now is the structural integrity of the Euro zone," said Schlossberg.
He said the dollar could test the $1.25 level on the euro in the coming week.
"Gold broke $900 last Monday, and it's a telltale sign that you are starting to get fear of sovereign debt, that's one reason gold is going up. But the other reason is if everyone's yield is going to zero, in a world without yield, gold doesn't look so bad," he said.
Oil fell 6.6 percent for the month to $41.68 per barrel.