US futures drop as Cisco causes investor unease
United States stock index futures fell on Thursday as investors fretted about the chances for a recession after technology bellwether Cisco Systems Inc warned about slowing orders.
Shares of Cisco, a network equipment maker, slumped 11 per cent in Europe and dragged down other tech heavyweights, including Oracle Corp and Apple Inc.
The Nasdaq composite index entered bear market territory on Wednesday as technology shares led Wall Street to a third straight day of losses.
"Poor corporate guidance overnight is weighing on the market, so we're looking at a lower open," said Peter Cardillo, market economist at Avalon Partners in New York. "The economy is slowing and that raises questions about capital expenditures and earnings going forward."
S&P 500 futures dropped 5.4 points and were below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.
Dow Jones industrial average futures fell 35 points. Nasdaq 100 futures declined 21.50 points.
PepsiCo Inc, which makes Pepsi Cola, Frito Lay snacks and Quaker oatmeal, reported lower quarterly profit on Thursday, hurt by a higher tax rate and a decline in sales volume of carbonated soft drinks.
Investors were skeptical about the outlook for Federal Reserve interest rate cuts to revive growth.
Cisco warned of a rapid slowdown in U.S. and European orders.
Technology is seen as particularly vulnerable to an economic downturn as slowing growth causes businesses to cancel or postpone their capital investments on technology gear.
The Nasdaq index ended Wednesday down more than 20 per cent from its closing peak in October, the traditional definition of a bear market.
Until recently, investors had thought the sector will be largely immune from fallout from the housing slump that has roiled the financial sector and has fanned recession fears.
Investors will scrutinize January sales reports from major retailers, including Wal-Mart Stores Inc, to see how consumers are faring.
Companies due to report earnings include Moody's Corp, Pepsico and International Paper Co.
Economic indicators set for release include weekly initial jobless claims at 8:30 am (1330 GMT) and December pending home sales at 10 am (1500 GMT).
US stock indexes dropped for a third straight session on Wednesday after Federal Reserve officials cast doubt on the outlook for more interest rate cuts. (Reuters)
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