Recession worries flare on Wall Street

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NEW YORK (CNNMoney.com) -- Stocks were poised to extend declines Thursday after weak sales from Wal-Mart Stores and disappointing guidance from tech bellwether Cisco Systems sparked a new round of recession worries.

Less than two hours before the start of trading, Nasdaq and S&P futures were indicating a drop for stocks at the open.

Wal-Mart (WMT, Fortune 500) said its sales at stores open at least a year grew only 0.5% in January, excluding fuel sales. That was well below the forecast of 2% growth in that closely watched retail measure known as same-store sales.

January has become an increasingly important period for retailers, especially with the growth in gift cards purchases during the holiday shopping period. The gift cards are booked when redeemed, rather than when sold.

But Wal-Mart, the world's largest retailer, said "gift card redemptions were below expectations, and customers appear to be holding gift cards longer and using them more often for food and consumables rather than discretionary purchases."

Wal-Mart had been expected to have one of the better January sales reports. Sales tracker Thomson First Call forecasts the other 41 chains it follows collectively are expected to post only a 0.1% rise in sales.

David Kelly, the chief market strategist for JPMorgan Funds, said that even though forecasts of weak same-store sales should already be priced into the market, having more bad news from major retailers just feeds the greater recession fears in the markets right now.

"I don't think there's that much information in same-store sales we don't know. We all know January spending was weak," he said. "But I think the market is in a nasty mood right now."

Wholesale club Costco (COST, Fortune 500) reported early Thursday that its same-store sales rose 7%, topping First Call's forecast of a 6.6% rise. But much of that gain came from gasoline sales and international stores. The rise at U.S. stores, excluding gas sales, was only 3%.

Cisco also is hanging over markets. The network equipment maker reported quarterly sales and earnings late Wednesday that met analysts' estimates, but the firm gave a weak outlook for sales in the current period.

The forecast is likely to extend the losses racked up by the tech-laden Nasdaq, which fell into bear market territory Thursday. A bear market is defined as being 20% off cyclical highs.

The government's weekly initial jobless claims reading could also get more attention than usual right now due to recession worries, Kelly from JPMorgan Funds said.

Economists surveyed by Briefing.com forecast that first-time claims last week slipped to 340,000 from 375,000 a week earlier. That report is due at 8:30 a.m. ET.

Investors and economists are likely to keep an eye on the Senate Thursday after a vote late Wednesday that threw the future of a $150 billion economic stimulus package into doubt.

Republicans blocked Democratic efforts to add add $44 billion in help for the elderly, disabled veterans, the unemployed and big business to a package passed by the House that would send most U.S. taxpayers rebates of $600 or more. Senate Democrats have argued the House bill is insufficient and it is not clear if they will approve it without the additional assistance they seek.

There will also be a hearing before the Senate Banking Committee Thursday on reform for government sponsored mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500), with top executives from both firms due to testify, along with federal regulators.

After the market opens investors are due to get a report on December pending home sales from the National Association of Realtors, along with that trade group's updated sales forecasts.

In major corporate news, Northwest Airlines (NWA, Fortune 500) and Delta Airlines (DAL, Fortune 500) are closer to a merger deal that would create the nation's largest carrier. A deal could spur rivals such as UAL Corp.'s United Airlines and Continental Airlines to seek out partners.

An airline deal could give markets a bit of a lift. "I do think a pick up in merger activity, even if it is in a downtrodden sector, suggests someone sees some value, and that's a mild positive for market," Kelly said.

Global markets were mixed. Japan's Nikkei finished the session higher. Several markets in Asia were closed for the Lunar New Year holiday. European markets fell in early trading.

The Bank of England followed the Federal Reserve and cut rates early Thursday, although only by a quarter-percentage point. Meanwhile, the European Central Bank left rates unchanged.

Oil prices were little changed in early trading, with a barrel of light, sweet crude slipping 2 cents to $87.12 a barrel in electronic trading. Concerns that a recession will cut demand for oil has pushed prices down for the last week.