They will be shy and unsure of themselves. You have to make sure that you are welcoming all their spoken contributions. At this age, most children will respond and speak in single words or very short phrases. Demanding that children respond in 'complete sentences', will make the children reluctant to speak at all. The reading problem is more related to learning a 'new' alphabet.
All children guess at words by looking at the initial letters.
Try asking the children to draw 'boxes' around words written in normal small letters. For example, the children should quickly learn to recognise the shapes of 'red', 'blue', 'white', 'black', 'green' and 'orange'. When they can do this try the same approach with different groups of words. You will find that their 'word recognition' skills improve very quickly. I think there is something odd about the first sentence.