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More bumps ahead as market awaits big report
Patti Domm
Jin Lee | Bloomberg | Getty Images

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.

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