The Dow, S&P 500 and Nasdaq ended Friday roughly 2% lower. For the week, the three indexes each dropped more than 3%. For the month, the Dow & S&P finished in the red.

ClearBridge Investments investment strategist Jeffrey Schulze says the indexes could pull back up to 10% because market sentiment is overly bullish.

"We thought that positioning was pretty stretched as we came into January. Optimism was off the charts, put-call ratios were at levels last seen in 20 years. You also had record margin positioning. There is a lot of optimism in all of the investor sentiment surveys, so I think the market was due for a bit of a breather, little bit of a consolidation."

Worries of a short squeeze grew Friday as some trading platforms allowed retail investors to resume trading shares of GameStop and Koss. Shares of the videogame retailer jumped 68% and the headphone manufacturer rose 53%.

Hedge funds betting that those stocks would fall recently sold off investor favorites to cover billions of dollars in losses. Apple and Amazon were among the big decliners.

Shares of Johnson & Johnson fell nearly 4%. The drugmaker said its single-dose vaccine was 72% effective in the U.S. and 66% globally in preventing COVID-19. But that fell short of the high bar set by Pfizer/BioNTech and Moderna, whose vaccines were found to be 95% effective when given in two doses.