NEW YORK — Stocks ended a disappointing January with a loss as investors questioned whether the economy will be able to sustain its big fourth-quarter growth rate. Downbeat earnings at technology companies also pulled stocks down.
The Dow Jones industrials fell 53 points Friday to close the month down 3.5 percent. Just 10 days earlier, the average was at a 15-month high. Investors who are increasingly uneasy about the economy, earnings and politics have been pulling money out of the market over the past week.
January was the worst month for the market since February. Many market watchers believe January sets the tone for stocks for the rest of the year, and historical data backs that up. Since 1950, the Standard & Poor's 500's full-year direction has matched its January performance more than 90 percent of the time, according to the Stock Trader's Almanac.
Still, the January barometer can be faulty. Last year, when the market had its worst January ever, the Dow fell 11.4 percent for the month, and then went on to post an 18.8 percent gain for all of 2009.
Stocks initially rose Friday after the Commerce Department said gross domestic product, the broadest measure of the economy, expanded at an annual rate of 5.7 percent during the fourth quarter, easily topping forecasts of 4.5 percent. The strong growth, coupled with an upbeat report on manufacturing in the Midwest, reassured investors about the economy.
However, details within the GDP report also raised questions about how well the recovery can be sustained. Most of the growth came from companies replenishing low inventories. Rebuilding inventories tends to create just a temporary bump in growth.
"The GDP report looks shiny and new on the surface," said Alan Gayle, senior investment strategist for RidgeWorth Investments. "But once you open up the hood, you start to see it's not as great as on the outside."
Michael Sheldon, chief market strategist at RDM Financial Group, said the report "is going to leave doubts" in the minds of investors who are looking for consistent economic improvement.
Questions about the report added to the market's growing list of concerns. Investors were already uneasy after China said it was trying to limit its economic growth and as President Obama announced plans to overhaul banking regulations. Shares have fallen sharply since hitting a 15-month high last week.
The Dow fell 53.13, or 0.5 percent, Friday to 10,067.33. The Dow is now down 658.10, or 6.1 percent, since reaching its 15-month high of 10,725.43 on Jan. 19.
The S&P 500 index fell 10.66, or 1 percent, to 1,073.87, while the Nasdaq composite index fell 31.65, or 1.5 percent, to 2,147.35, lagging the other indicators following a disappointing earning s report from Microsoft Corp.
For the month, the S&P 500 is down 3.7 percent, while the Nasdaq is off 5.4 percent.
Unlike most Januarys, there wasn't a flood of fresh money moving into the market this month, since so much cash went into last year's big rally, said Gayle. Without that injection of money, portfolio managers are left to collect profits from last year's big run, he said.
The recent spate of bad news and uncertainty led many professional investors to decide the best course of action was to sell.
"The market is in the process of recalibrating," Gayle said. "We will get some retrenchment."