Futures Lower But H-P Gives Market Boost

Wall Street faced a lower open Tuesday, but the damage was mitigated by a powerful earnings report from Hewlett-Packard, which bucked the economic trend this season by posting a bright outlook.

Futures were well off their morning lows following the Hewlett-Packard report, which especially lifted tech stocks and actually pointed to a flat open for the Nasdaq. H-P shares gained more than 13 percent in premarket trading.

The report helped lessen fears that the might out the five-and-a-half-year closing low of 8175.77 hit on Oct. 27.

Futures retreated a bit following a government report showing that producer prices fell by a record 2.8 percent in October but core inflation, which strips out volatile food and energy prices, actually rose 0.4 percent in the month.

Analysts were divided as to whether a retest would be followed by gains or a further leg downward.

"We will succeed this time and we're going to be seeing some positive divergence as we come back to where we were previously," Dodge Dorland, chief investment officer at Landor Capital Mgmt, told CNBC when looking at the futures.

But in another view, the Dow could sink as low as 6,700 before the year is out, in another accelerated down move similar to October's slump, Roelof van den Akker, chartist from ING Wholesale Banking, said on CNBC.

And the move downward, to where the S&P 500 breaches 815 or so, would to be painful for many.

"If it were to take out that bottom that could actually bring in some buying, but the trip down there would be devastating while they're hauling all these people before Congress," Kevin Ferry, of Cronus Futures Management, said on CNBC. "You might want to avert your eyes."

Perhaps the brightest spot is the liquidity banks are accumulating under the Troubled Asset Relief Program, even though banks still are slow to lend. Ferry said the amount of capital on the sidelines at the Federal Reserve is "astronomical" compared to traditional levels, with $400 billion on hand compared to a norm of about $2 billion, and he said the number will only increase.

"The first sign of traction there's going to be a heck of a lot of opportunity," he said. "You have to be able to point to something and say that's where the liquidity is going, and right now the only thing you can point to is the Federal Reserve's balance sheet." See Ferry's full commentary in video.

Yahoo's chief executive Jerry Yang is to step down from his positionat the Internet portal as soon as the board finds a replacement. Investors cheered the move, sending shares up nearly 14 percent in premarket trading.

In corporate news, U.S. government bailout money could be tapped by Dutch insurerAegon if it buys a small thrift company. Aegon could qualify for more than $1 billion in government cash, but said it doesn't need to raise additional capital at the moment.

The ongoing debate over a proposed bailout for the Big Three automakers pushed into its second day with the White House and congressional Democrats taking different stance on how best to help the sector.

In other bailout news, Treasury Secretary Henry Paulson said it will take a considerable amount of time to restore the U.S. financial system to full health, but solid progress had been made.

Meanwhile, the economic stimulus bill being backed by President-elect Barack Obama is unlikely to be approved by the Senate during its short legislative session this week, a top Senate aide said.

On the economic front, October's producer price index is released at 8:30 am and the National Association of Home Builders' sentiment survey for November is out at 1 pm.

In earnings, retailer Home Depotreported a 31 percent drop in quarterly profit Tuesday as consumers put off big-ticket projects amid a deepening economic crisis.

But the profit of 45 cents a share beat analyst estimates, and shares gained 2.5 percent premarket.