Investors may crave a quiet market this week to digest the recent volatility in stocks and rehash Sunday's Super Bowl, but the prospect doesn't look likely.
The catalysts that drove the Dow and the S&P 500 to their worst monthly performances since May 2012 have not gone away. The retreat from emerging markets - and stocks in general - appears to have more room to run as the factors that helped propel the market to record highs in mid-January aren't providing enough support. Although fear is back in the market, some investors see this as a time to buy.
Calls for a market correction have become louder, with the S&P 500 down 3.6 percent from its all-time closing high and the Federal Reserve's announcement on Wednesday that it will keep trimming its monthly bond buying.
More than 80 S&P 500 components are set to report earnings this week, but the myriad issues surrounding emerging markets remain at the forefront for investors.
"Bad news in any area of the globe is bound to make sentiment less positive in others. This isn't an issue of contagion, but there will be influence," said John Chisholm, chief investment officer of the Boston-based Acadian Asset Management, which has an emerging market equity fund with $1.2 billion in assets. "There's plenty more instability ahead."
While countries such as Turkey and South Africa have taken steps to stabilize their currencies, the trend has remained negative for those assets.
The CBOE Volatility Index, a measure of investor anxiety, rose 34.2 percent during January to end the month at 18.41, after wrapping up 2013 at 13.72. The VIX remains below the long-term average of 20, however, and has not traded above 19 since October.
For the month of January, the Dow fell 5.3 percent and the S&P 500 lost 3.6 percent - marking their worst monthly percentage declines since May 2012. The Nasdaq fell 1.7 percent in January, its worst month since October 2012.
It's tempting to believe that U.S. stocks are a salve for this pain. But the reality is that when emerging markets swoon, U.S. stocks decline as well, just not as much.
BRICs AND THE BOTTOM LINE
Goldman Sachs analysts wrote that when MSCI's emerging markets index falls at least 5 percent, the S&P 500 tends to fall by half of that. The MSCI index has dropped 11 percent since an October peak of 1,047.73.
"Our EM strategists believe some EM equity markets have further to