Stocks could see more volatility in the coming week, as traders await Friday's jobs report and watch emerging markets to see if the selloff can be contained.
After taking a bruising in January, stocks start February with the Dow already down 5.3 percent since the start of the year, its worst January since 2010. Traders worry that the old saying, "As January goes, so goes the year" will turn out to be true.
As stocks sold off, yields at the long end moved lower in January. The 10-year yield was at 2.65 percent Friday, a level last seen in November.
"We'll probably have more choppy days as investors watch what's happening in markets abroad," said Stuart Freeman, chief U.S. equity strategist at Wells Fargo Advisors. "We're going to have more volatility this year than last year, and this is part of it. Here we've got the Fed taper once. They pulled back $10 billion this month and then did another $10 billion, and the market responded."
The January jobs report could be a key, as the weak December report was viewed as an anomaly, reflecting the impact of weather. There are 185,000 nonfarm payrolls expected for January, up from the 74,000 in December, according to Thomson Reuters.
The employment report is an important metric for the Fed, which has said it would base further tapering of its bond purchases on the economic data and financial conditions.
It is also a big week for the Federal Reserve, with Janet Yellen sworn in Monday as the 15th Fed chair and the first woman in the role. She also takes the helm of the Fed at a particularly challenging time, as it begins to move away from its massive quantitative easing.
Freeman said the market will react in "fits and starts" to Fed tapering, and now it is reacting to the emerging markets selloff. Those markets were weakening in reaction to the Fed's slowing of stimulus, but selling increased dramatically after Chinese manufacturing data showed activity declined.
"The market's concern right now is about the emerging market news," he said. "Is the slowing that we're seeing going to mean there's contagion?"
Many analysts see the U.S. as insulated from the emerging market meltdown—especially because they view it as a story about individual countries, such as Turkey and South Africa, with particular problems rather than a contagion taking down all markets.
"You're going to have some countries that are going to be experiencing more volatility than we are—kind of more at the end of the whip than we are," Freeman said.
"I think what we've seen mostly here is you had a market that was up, investors that may not have taken profits, saw more concerns abroad and said this was an opportunity to take some profits," he said.
Freeman expects the S&P to be flat to slightly higher by year-end, between 1,850 and 1,900, adding that better-than-expected earnings this quarter should help. About 85 companies report in the week ahead, including BP, General Motors, Disney andTwitter—posting its first quarter as a public company.
The S&P 500 was down 0.4 percent in the past week to 1,782, despite big swings. It is down 3.6 percent for the month—its worst performance since May, 2012.
Brian Belski, chief investment strategist at BMO Capital Markets, said U.S. investors should not worry too much about emerging market weakness.
He said he had examined the performance of all rolling one-year periods for the S&P 500 and the MSCI Emerging market index since 1987 and found the average return of the S&P during that time was 0.5 percent, while the emerging market return was negative 18.7 percent.
"While flattish market returns are not necessarily impressive, they do help to assuage fears that emerging markets' struggles automatically translate into big trouble for U.S. stocks," Belski said.
A deluge of economic data is due in the coming week, starting with the ISM, an important read of manufacturing activity, Monday.
But the market is watching jobs data the closest. Barclays chief U.S. economist, Dean Maki, expects to see 175,000 jobs and the unemployment rate steady at 6.7 percent.
"Weather played a role in the December report, but the question is how big, and there's no good way to answer that with any precision," he said. "One would expect some payback for the bad weather in December in January, but the first thing everyone says is January was cold."
The difference was that the survey week for the January jobs report was actually not very cold.
"We actually think weather will have less of an effect," Maki said. "Weather could be a positive for the report, but if that was the only factor, we would expect to be above recent trends."
One area of concern for the job market is the weekly jobless claims report, viewed as the most real-time piece of data on jobs.
"What we have seen happening is weekly jobless claims have been moving slightly higher and it has been persistent enough," Maki said. "It has been going on since the end of November. We are giving some weight to that."
Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi, agreed that the claims are a cause for some concern.
"If you're trying to do tea leaf reading of the labor market recovery ... the weekly jobless numbers aren't as friendly to big, 200,000 payroll jobs gains," he said. "You can't rule them out, but you do wonder what unemployment claims are telling us because we haven't seen them make a new low in a while."
Claims were reported at 348,000 in the past week, up 19,000.
What to Watch
8:58 a.m.: Manufacturing PMI
9:00 a.m.: Janet Yellen swearing in as Fed chair
10:00 a.m.: ISM manufacturing
10:00 a.m.: Construction spending
Earnings: Toyota, UBS, Archer Daniels, Arm Holdings, Clorox, Delphi Automotive, Michael Kors, Sirius XM Radio, McGraw-Hill Financial, Boston Scientific, BP, CME Group, Gannett, Eaton, Emerson, Gilead Sciences, Hain Celestial, DeVry, Genworth Financial, Aflac, Buffalo Wild Wings
10:00 a.m.: Factory orders
12:30 p.m.: Chicago Fed President Charles Evans on monetary challenges
Earnings: Disney, Merck, Twitter, Allstate, Allergan, Automatic Data, Estee Lauder, Ralph Lauren, GlaxoSmithKline, Humana,Time Warner, Nasdaq OMX, Lazard, Shutterfly, Pandora, Tesoro, Solera, Solar Winds, Yelp, Green Mountain, FMC, Akamai
8:15 a.m.: ADP employment
8:58 a.m.: Services PMI
10:00 a.m.: ISM Non-Manufacturing survey
10:00 a.m.: Fed Gov. Daniel Tarullo testifies on Volcker Rule
12:30 p.m.: Philadelphia Fed President Charles Plosser on economic outlook
1:40 p.m.: Atlanta Fed President Dennis Lockhart on economic outlook
Bank of England rate decision
European Central Bank rate decision
Chain store sales
Earnings: General Motors, Philip Morris, Sanofi, Credit Suisse, Aetna, Cummins, Alliance Data, Exelon, Kellogg, KKR, Sony, Vulcan Materials, Noble Energy, Diamond Offshore, Sealed Air, AOL, Flowers Foods, Dunkin' Brands, New York Times, Snap-On, Scotts Miracle-Gro, News Corp., LinkedIn, Netgear, OpenTable, True Blue, Lionsgate, Expedia
8:30 a.m.: Initial claims
8:30 a.m.: International trade
8:30 a.m.: Productivity and costs
5:30 p.m.: Boston Fed President Eric Rosengren on economy
8:30 a.m.: Employment report
3:00 p.m.: Consumer credit
—By CNBC's Patti Domm. Follow her on Twitter @pattidomm