Before the Bell: Gold Nears All-Time High, Short Seller Goes After AI, and Trouble in Crypto Paradise
Premarket action on Wednesday had the three major U.S. indexes trading lower. The Dow Jones industrials were down 0.12%, the S&P 500 down 0.18% and the Nasdaq 0.17% lower.
Eight of 11 market sectors closed lower Tuesday. Industrials (−2.25%) and energy (−1.72%) posted the day’s worst losses. Utilities (0.52%) and communications services (0.31%) posted the largest gains. The Dow closed down 0.59%, the S&P 500 down 0.58% and the Nasdaq down 0.52% on Tuesday.
Two-year Treasuries fell 13 basis points to end Tuesday at 3.84%, and 10-year notes dropped eight basis points to close at 3.35%. In Wednesday’s premarket, two-year notes were trading at around 3.89% and 10-year notes at about 3.37%.
Tuesday’s trading volume was slightly below the five-day average. New York Stock Exchange losers outpaced winners by 2,087 to 911, while Nasdaq decliners led advancers by about 5 to 2. A few heavily weighted tech megacaps — Alphabet, Amazon and Meta Platforms — posted gains large enough to offset some of the damage to the Nasdaq.
The ISM nonmanufacturing index for March will be released after markets open Wednesday morning. Economists are expecting an index reading of 54.9%, slightly below the February reading of 55.1%. The Energy Information Administration releases its weekly petroleum inventory report later in the morning as well. Tuesday’s report from the American Petroleum Institute showed a drop of 4.35 million barrels in crude inventories and drops of 3.97 million and 3.693 million barrels in gasoline and distillates, respectively.
Gold miner Newmont Corp. (NYSE: NEM) was Tuesday’s best performer among S&P 500 stocks, with a gain of 3.8%. The yellow metal settled at $2,038.20 an ounce, after reaching a high of $2,044.90. Gold’s all-time high was set in 2020 at $2.069.40. A declining dollar, falling bond yields and risk aversion lined up Tuesday to give a boost to the price of gold and to Newmont. Nonindex gold-mining stocks also posted solid gains: Kinross Gold Corp. (NYSE: KGC) rose 6.51%, Agnico Eagle Mines Ltd. (NYSE: AEM) added 5.43% and Barrick Gold Corp. (NYSE: GOLD) rose 4.42%
Steel Dynamics Inc. (NASDAQ: STLD) dropped 8.73% to lead Tuesday’s decline in industrial stocks. The company had no specific news, but it is exposed to economic slowdowns both in construction and auto manufacturing. While the weaker ISM report on manufacturing and the JOLTS report that job openings have fallen below 10 million for the first time in almost two years eased inflation worries a little, workers paid the price.
Artificial intelligence company C3.ai Inc. (NYSE: AI) shares dropped 26.34% on Tuesday to close at $24.95 and traded down another 3.57% in Wednesday’s premarket. Short seller Kerrisdale Capital Management sent a letter to accounting firm Deloitte & Touche calling into question “accounting and disclosure issues” at C3.ai, a client of the accounting firm.
In our opinion, C3.ai has utilized highly aggressive accounting to inflate its income statement metrics in order to meet sell-side analyst estimates for revenue and certain profit metrics, and to conceal significant deterioration in its underlying operations.
The letter details allegations, among other things, of “[o]paque, confusing and highly concerning disclosures and financials related to the company’s related party and very large customer, Baker Hughes.”
Another big mover Wednesday morning was Johnson & Johnson (NYSE: JNJ). The Dow company has settled a class action lawsuit related to its talc products for $8.9 billion. That is a lot of cash, but at least now investors know the extent (and limit) of the damage. Or not. Barron’s has a more detailed explanation of how J&J is trying to handle this lawsuit.
Finally, all is not particularly well in the cryptocurrency space. Last week, the U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit against crypto exchange Binance, and the Securities and Exchange Commission (SEC) filed a complaint against a less well-known crypto firm, Beaxy.com. The action against Beaxy.com company may have greater consequences.
The SEC is charging the firm for simultaneously operating an unregistered securities exchange, a brokerage and a clearing business as a single company, a practice that the SEC claims is a conflict of interest. The charges could have an effect on the SEC’s reported enforcement action against Coinbase Global Inc. (NASDAQ: COIN), a much larger company that may also run into conflict of interest concerns. The company said two weeks ago that it had received a Wells notice from the SEC of a pending enforcement action against the company, but so far, the SEC has not confirmed that it sent the Wells notice or offered any more information about what the agency may be charging Coinbase with. Stay tuned.
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