Early slip on cautious tone amid flood of earnings

Kevin Pendley | Oct 21, 2008 8:50am EDT | Comment

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Small-cap stocks are expected to open lower, pulled down by a cautious tone amid a sea of earnings releases. Losses should be limited by another dip in Libor rates overnight, which hints at a thaw in frozen lending lines. Stock index futures were down about 1.3% overnight, which suggests an opening for the Russell 2000 (NYSE:IWM) near 540.

Earnings news was all over the board this morning, but investors are concerned that the coming quarters will continue to pinch profits as the economy limps into 2009 and consumers tighten spending.

Analysts at Goldman Sachs downgraded Citigroup Inc. (NYSE:C) to a “sell” rating, which could be a burden to bank and financial stocks this morning. C shares were off about 3% in pre-market trading. Within financials, there were positive stories this morning, including American Express Company (NYSE:AXP), which was up almost 4% after beating the estimate.

Amid the flood of earnings from last night to this morning, it appears the earnings news that has really stuck to the investor psyche came from Texas Instruments Inc. (NYSE:TXN) which warned that fourth-quarter results would miss the forecast. TXN shares were down about 8% in pre-market trading. Also, on the tech front, Sun Microsystems Inc. (Nasdaq:JAVA) was off about 9% in pre-market trading following soft quarterly numbers.

Pharma stocks appear to be a source of early strength for the market after Pfizer Inc. (NYSE:PFE) topped the forecast and was up more than 3% in pre-market trading. Also, Genentech Inc. (NYSE:DNA) was up about 0.4% on news that a buyout from a Swiss firm was still in the works.

Energy stocks were a big part of Monday’s rally, but that sector could see some profit-taking today as crude oil futures were down more than $1 a barrel ahead of the stock market opening. The market has already priced in expectations for an output reduction by OPEC, but remains concerned about the demand picture amid slumping economic conditions around the world. OPEC is slated to meet in Vienna on Friday to discuss production targets.

Looking at the chart picture, a weaker start for the Russell would bring in a support test along the 538 zone. Below there, support comes in today at 528, then at 520. Meanwhile, resistance on a rally lurks overhead at 550, then at 558.