After reaching a 15-month high two weeks ago, stocks posted their worst month since February 2009, falling 5.7% in January.

Last week, the Dow lost 105.65 points, or 1.0%, to close at 10,067.33. The S&P shed 17.89 points, or 1.6%, ending at 1,073.87. The NASDAQ declined by 57.94 points, or 2.6%, to close at 2,147.35.

The S&P 500’s performance in January is seen as a forecast of how stocks will end the year. Since 1950, there have been only five major errors in predicting the markets’ direction based on how stocks do in January.

Wall Street was unsurprised with the Federal Reserve’s decision to hold interest rates at their record low of zero to 0.25%. It has remained in this range since December 2008. Commercial banks’ prime lending rate held fast at about 3.25% after the announcement. With the housing industry still on shaky ground, the central bank has been steadfast in keeping rates low since others, like home equity loans, credit cards and consumer loans, are directly tied to the Fed’s main rate.

With the economy slowly clawing its way out of the recession, orders for durable goods advanced by a modest 0.3% in December. But that was not enough to prevent orders from declining at a record level for the year. Economists were looking for a 2% advance in durable orders for the month. The monthly gain was facilitated by a 3.6% jump in demand for automobiles and related parts, an 8.1% surge in metals, and a 6% gain in machinery needs.

For 2009, durable goods orders plunged 20.2%, the largest decline on record that dates back to 1992. The more than 20% decrease follows 2008’s nearly 6% drop, marking the first back-to-back yearly declines since 2001-2002.

Following four straight quarters of economic contraction, the economy grew for its second consecutive quarter from October through December. The 5.7% gain was the largest growth rate since 2003. The GDP report may be a little misleading last quarter as the growth was primarily attributed to businesses restocking depleted inventories. In fact, nearly 60% of the 4Q’s advance was a result of increased inventories. Excluding inventory changes, economic growth would have been at a 2.2% rate.

There were several other factors contributing to the nation’s economic growth coming in ahead of expectations. A 13.3% surge in spending on equipment and software, and a steep increase in exports were primary catalysts. Overall shipments of goods worldwide advanced more than 18% during the quarter, outpacing the 10.5% increase in imports.

For 2009, the nation’s economy declined 2.4%, the largest drop since 1946. Many economists believe that GDP will slow to a 3% rate during the current quarter, a component of 2.5% growth rate for all of 2010.

During the fourth quarter, the nation’s workers saw a minimal increase in wages and benefits. Compensation grew by 0.5% , the smallest amount on record, dating back more than 25 years. During the past year, wages and benefits increased 1.5%, the weakest showing on record.

The 0.5% increase during Q4 for compensation came in marginally higher than the 0.4% gain economists had anticipated. However, the 1.5% yearly increase in wages and benefits for 2009 was well short of the 2.6% increase in 2008.

On the housing front, December new home sales unexpectedly decline a record 7.6% to a seasonally adjusted annual rate of 342K. That capped off the industry’s worst year on record. Recent results were the weakest since March, while sitting only 4% higher than the industry’s bottom last January. Economists had anticipated December sales to come in at 370K units.

For the year, there were only 374K new homes sold, down 23% from the previous year and the weakest showing since record keeping first began in 1963. The median sales price of new homes was $221K, down nearly 4% from $229K a year earlier. Still, they did increase 5% from November’s median price of $210K.

Unemployment remains the economy’s primary concern. The Labor Department announced the number of newly laid-off workers seeking unemployment benefits retreated by a less than expected amount last week. Jobless claims fell by 8K to a seasonally adjusted rate of 470K. Economists were looking for initial claims to drop to a rate of 450K. Meanwhile, the number of those continuing to receive benefits was reduced by 57K to 4.6M, while just over 5.6M were receiving extended benefits, a decrease of nearly 300K.

Earnings season rolls on and there’s a lot of economic data due up this week as well, highlighted by the January Employment report. Personal Income, Personal Spending, Construction Spending, Pending Home Sales, Factory Orders and Consumer Credit reports for December are due out as well, along with the ISM Index, Auto/Truck Sales, Challenger Job Cuts, ADP Employment Change, ISM Services for January, preliminary readings for Productivity and Unit Labor Costs for the 4Q, and weekly results for Initial Claims and Crude Inventories.