Before the Bell: Another AI Win, Bitcoin and Tesla Take a Hit

Premarket action on Friday had the three major U.S. indexes trading higher. The Dow Jones industrials were up 0.18%, the S&P 500 up 0.29% and the Nasdaq 0.37% higher.

Nine of 11 market sectors closed higher Thursday. Utilities (1.82%) and technology (1.26%) rose the most. Financials (−0.53%) and consumer cyclicals (−0.32%) posted the day’s only losses. The Dow closed up 1.05%, the S&P 500 up 0.76% and the Nasdaq up 0.73%.

Two-year Treasuries closed unchanged at 4.89% on Thursday, and 10-year notes rose by seven basis points to close at 4.08%. In Friday’s premarket, two-year notes were trading at around 4.87% and 10-year notes traded at about 4.00%.

New claims for unemployment benefits rose by 190,000, well short of the consensus estimate of 200,000, but lower than the revised total for the prior week of 192,000.  Continuing claims rose by 5,000 to 1.655 million.

Thursday’s trading volume was right around the five-day average, and New York Stock Exchange winners outpaced losers by 1,654 to 1,416, while Nasdaq advancers led decliners by about 8 to 7.

Among S&P 500 stocks on Thursday, Salesforce Inc. (NYSE: CRM) posted a gain of 11.5% to lead the index. A solid earnings report and a promise that the company would now focus on profits rather than growth did the trick.

On the other side of the ledger, Tesla Inc. (NASDAQ: TSLA) posted the day’s worst loss, down 5.85%. The company’s investor day presentation on Wednesday was long on vision and short on details. Tesla’s vision has never been in doubt. Its ability to scale to that vision has long been a concern for some investors. The skeptics carried the day.

After reporting earnings results that beat estimates on both the top and bottom lines, artificial intelligence (AI) software vendor Inc. (NYSE: AI) saw its share price jump 14% in after-hours trading Thursday. The stock traded up almost 17% in Friday’s premarket.

Founder and CEO Thomas Seibel, who also founded Seibel Systems and later sold it to Oracle in 2005 for $5.8 billion, is riding the current rest of a wave of enthusiasm for AI. In a statement, he said, “We are seeing tailwinds from improved business optimism and increased interest in applying C3 AI solutions to address an increasing range of applications across a broad range of industries. The overall business sentiment appears to be improving. This is a dramatic change from what we experienced in mid-2022.”

Bitcoin dropped below $23,000 late Thursday (early Friday morning in Hong Kong). The bellwether cryptocurrency declined 5% as investors worry about the longer-term effects of Silvergate Capital Corp.’s (NYSE: SI) threatened insolvency. Silvergate’s stock plunged nearly 58% Thursday, and it traded down an additional 3.5% Friday morning.

The news is not all bad for true believers, however. More than $62 million in Bitcoin long futures were liquidated in the early hours of trading in Hong Kong Friday morning. Bitcoin’s price drop forced the liquidations when traders were unable to keep their long bets open.

That situation opens the door for bulls who believe a Bitcoin price rally will appear soon.

Tether, a stablecoin that often helps cushion sudden negative moves in the cryptosphere, also dropped nearly 5% on Thursday, even though Tether has no exposure to Silvergate.

Crypto markets were hammered in 2022, and Bitcoin had been trading up by around 40% in 2023 before Thursday’s debacle. The 5% drop only changes the math by a little, but increasing pressure on crypto from regulators and central banks is setting a negative tone for traders.

Speaking of regulators, Treasury undersecretary for domestic finance, Nellie Lang, said in a speech on Wednesday that the Fed is preparing to launch its FedNow Service this year. The service has been designed “to allow for near-instantaneous retail payments on a 24x7x365 basis, using an existing form of central bank money (i.e., central bank reserves) as an interbank settlement asset.”

At the same time, U.S. officials are considering an alternative, perhaps parallel, system based on a central bank digital currency (CBDC) that would offer the same thing. But a U.S. CBDC would “involve both a new form of central bank money and, potentially, a new set of payment rails.”

While the crypto industry wants regulation, it only wants the good bits. It is unlikely that the U.S. government is going to make an offer like that.

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