US stocks were set to fall sharply on Thursday after Cisco's downbeat outlook added to concerns about the outlook for corporate tech spending and Wal-Mart's January sales proved a big disappointment. Jobless claims meanwhile declined less than expected.
Less than an hour before the opening bell, S&P 500 futures were down 14.1 points at 1315.90 and were trading above below a fair value of 1327.46. Nasdaq futures were down 32.75 points at 1715.50, below a fair value reading of 1746.04, and futures for the Dow Jones Industrial Average were down 124 points at 12,111.
The Nasdaq Composite slipped back into a bear market on Wednesday having fallen more than 20 per cent from its October peak amid skittishness ahead of Cisco's earnings.
Reporting results after the closing-bell on Wednesday, Cisco said quarterly profit rose 7.2 per cent to $2.06bn, in line with analysts' estimates, but the shares plunged 8.6 per cent in the pre-market after it projected 10 per cent sales growth for the fiscal third quarter, below expectations.
Cisco is considered a bellwether for the tech sector and its forecast may put tech stocks under pressure on Thursday. Last time the company announced results, cautious comments from chief executive John Chambers on the outlook for financial companies' tech spending caused tech shares to plummet.
Dismal retail sales figures also weighed heavily on sentiment ahead of the open. Wal-Mart Stores (NYSE:WMT)' same-store sales rose only 0.5 per cent in January, much less than the 2 per cent increase forecast by analysts. In February, Wal-Mart said it expected same-store sales to grow a maximum of 2%. The shares were trading down 3.8 per cent in the pre-market.
Upmarket retailer Nordstrom, down 6.1 per cent in pre-market trading, reported a 6.6 per cent decline in same-store sales, while Gap said sales fell 2 per cent and Kohl's same-store sales declined 8.3 per cent. Macy's helped reverse earlier gains on Wednesday when it said January same-store sales fell 7.1 per cent.
In economic news, weekly jobless claims fell 22,000 to 356,000 but the reading was still far higher than many analysts had predicted. A sharp spike last week to 375,000, the highest reading in more than two years, had been dismissed by some economists as an anomaly. This time round the market expected a figure of around 340,000.
The four-week moving average of first time claims rose 8,500 to 335,000. Meanwhile, the number of people on long-term unemployment benefit hit a two-year high.
There was better news for the homebuilder sector ahead of pending home sales data, due at 10am ET, as DR Horton posted a narrower-than-expected quarterly loss. Still, the company posted a loss of $128.8m compared with a profit of $109.7m last year.
Pepsico said fourth quarter earnings fell 30 per cent to $1.26bn from a year ago, when results were improved by a tax benefit. Revenues rose 17 per cent to $12.35bn. The shares were up 1.9 per cent in the pre-market.
Rating agency Moody's said fourth quarter earnings fell 54 per cent to $127.3m as revenues from structured finance and bond sale ratings slumped. However the result was slightly better than expected.
Also in the financial sector, Wachovia said it would raise $3.5bn through a preferred-share sale as it seeks to build its capital position.
Bond prices tracked higher after the jobless data and on expectations of a weak opening for stocks. The yield curve steepened as yield on the two-year Treasury note shed 4bp to 1.88 per cent and the 10-year Treasury note yield gave up 2bp to 3.57 per cent
European stocks fell sharply ahead of the open on Wall Street after the ECB kept interest rates on hold. The FTSE Eurofirst 300 index gave up 2 per cent while the FTSE 100 sank 2.2 per cent. Asian equity markets closed mainly lower, led by another big fall on the Hang Seng, which sank 5.4 per cent
The dollar rose 0.5 per cent to $1.4561 against the euro after ECB President Jean-Claude Trichet warned of risks to European growth, raising the prospect of future rate cuts. The US currency fell 0.9 per cent against the pound to $1.9435, after the Bank of England cut interest rates by a quarter point.
The price of gold ticked higher as risk aversion increased, adding 0.3 per cent to $907.50, while crude oil fell 40 cents to $86.74, on fears of weakening US demand.
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