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TheStreet Open House

Stocks Close Out January With a Loss as Volatility Becomes the Norm

NEW YORK (TheStreet) -- There's a theory on Wall Street that how equities perform in January is a portent for the rest of the year. If a trader were to take this at face value, 2015 would shape up to be an ugly one for stocks.

Another big slide in the markets on Friday meant that for January, the S&P 500 has fallen more than 4%, the Dow Jones Industrial Average has dropped 4.5%, and the Nasdaq has crumbled 3% -- all this against a backdrop of uncertainty over the timing of the Federal Reserve's rate hikes, a continuing global slowdown, mixed earnings and oil prices showing no signs of regaining midsummer highs.

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"(The January theory) is just coincidence, of course. If you start the year well you usually have a good market that year, but I don't think having a weak January is going to really predict the rest of the year," said Wells Fargo's Gary Thayer. Last year, for instance, stocks ended January lower, but markets ended the entire year up more than 15%.

One thing was a given this month, though, and that was a bumpy ride. Friday's session continued the trend of increased volatility with stock markets volleying between big losses and slight gains. The S&P 500 was down 1.3%, the Dow slipped 1.4%, and the Nasdaq fell 1%. One bright spot, however, was the IPO of burger chain Shake Shack (SHAK) , which closed more than 118% higher than its IPO price in its first day of trading. 

Over the first three weeks of the year, the S&P 500 traded in at least a 1% range every day. By way of comparison, this only occurred 79 times over 2014. "Thus far in 2015, volatility is higher across the currency, equity and fixed income markets largely fueled by fears of growth, several international events and earnings season uncertainty," said Wells Fargo analysts in a note.

The sheer number of large-cap earnings out this week has contributed to market waves over the past five days. On the positive earnings side on Friday, Amazon (AMZN - Get Report) soared more than 13% after turning a quarterly profit above expectations, while gross margins rose 300 basis points from a year earlier to 29.5%.

MasterCard (MA) jumped nearly 1% as revenue surged 14% from a year earlier. The world's second-largest credit card company reported a 29% increase in profit.

On the flipside, Mattel (MAT - Get Report) and Eli Lilly (LLY) reported weaker-than-expected sales as a result of a stronger U.S. dollar and foreign exchange fluctuations. Earlier in the week, Procter & Gamble PG and DuPont DD credited currency for similarly weak results.

"The dominant theme of earnings season has been the currency translation risk," said Natixis' David Lafferty. "Companies are actually beating their forecasts, so it's been a reasonably good [season] in terms of realized earnings. The problem has been their outlook going forward."

Earnings have taken Wall Street's focus in what has been one of the busiest reporting weeks of the season. Microsoft (MSFT) , Qualcomm (QCOM) , Apple (AAPL) and Facebook (FB) were among the companies that reported earlier in the week.

The season is far from over with only 45% of S&P 500 companies having reported so far. Key earnings next week include Exxon Mobil (XOM) and Anadarko Petroleum (APC) on Monday, Walt Disney (DIS) on Tuesday, General Motors (GM) and Merck (MRK) on Wednesday, and Dunkin' Brands (DNKN) , LinkedIn (LNKD) , and Sprint (S) on Thursday.

Oil jumped nearly 8% in its final day of trading for the month, its best day since June 2012. West Texas Intermediate settled at $48.22 a barrel, boosted by news of intensified fighting between ISIS rebels and Kurdish forces in oil-rich Iraq.

News a number of oil producers including Baker Hughes  (BHI) and Chevron  (CVX) cut back on capital expenditures this year also boosted prices, as investors saw limited output from major suppliers as a solution to global oversupply.

Despite investors' vote of confidence late Friday, analysts continue to predict a solid comeback is still further down the road. "We see ongoing headwinds for oil prices," said Citigroup's Tim Evans in a report. "Optimists may view the price performance in the face of bearish news as an encouraging sign, but we continue to see near-term downside risks."

Contributing to investors' downbeat attitude on Friday, U.S. GDP rose 2.6% in the fourth quarter, lower than an expected 3.2% gain, as business spending remained weak. The pace was nearly half the third-quarter's blockbuster 5% growth. However, consumer spending was stronger than expected at 4.3%, a sign lower gas prices were continuing to prop up sentiment.

"While consumers were able to maintain an arguably heightened level of spending through the end of the year thanks to price reprieve at the pump, that additional spending power is hardly a supplement for a continuing lack of income growth and earnings opportunity," said Sterne Agee chief economist Lindsey Piegza.

Investors will get a chance to see how wage growth fares in the nonfarm payrolls report for January that is due next Friday. Average hourly wages fell 0.2% in December.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

--Written by Keris Alison Lahiff in New York.

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