By Jamie Chisholm
The No. 1 crypto is closely correlated with the Nasdaq
Liquidity pressures should ease, helping bitcoin rally
The latest stock market pullback has been led by technology plays, it’s pretty clear. The tech-heavy Nasdaq Composite COMP closed Thursday down 3.8% from its record high registered last week, while the broader S&P 500 SPX has retreated 2.5% from its peak.
Why Big Tech has been struggling of late, however, is more open to debate. The most popular theory is that rich valuations can’t cope with burgeoning doubts about returns on AI-linked capital investment.
But strategists at Citi, led by Dirk Willer, are skeptical that recent volatility is because of angst over Big Tech ROI. “We will not wade into this debate, as our best guess is that the market will give the companies some more time before expecting a return on investment,” the Citi team said in a note published late Thursday.
Citi does accept that hyperscalers raising debt on and off their balance sheet – rather than using cash – to pay for the AI build-out is a source of worry. But they argue the main cause of the stock market’s latest wobble is declining financial-system liquidity.
And one of the best ways to track that, they reckon, is via the performance of bitcoin (BTCUSD). The crypto asset this week fell into bear market territory, having lost more than 20% from its recent record high. The move came as the Treasury is rebuilding its general account (TGA), which in effect takes funds from the market. Since mid-July, bank reserves have fallen by around $500 billion, and such a trend has historically impacted bitcoin, according to Citi.
“Traditionally, falling reserves have also impacted equities negatively, but this did not happen prior to this week. But it is plausible that bitcoin is a more sensitive instrument for pure liquidity, especially with equities caught up in the fundamentally-driven AI narrative,” Citi says.
And the problem for tech stocks is that bitcoin acts as a warning signal for the Nasdaq NDX, Citi suggests. “We had shown in the past that NDX trades much better when bitcoin is trading well, and vice versa,” Citi says. “In particular, being long NDX only when bitcoin is above its 55-day moving average (and lagging it by a day) improves the active information ratio for NDX from 0.95 to 1.4 and is similarly significant for longer 2 and 3 day lags.”
The information ratio measures portfolio returns and indicates a portfolio manager’s ability to generate excess returns relative to a given benchmark.
Bitcoin is currently below its 55-DMA. The good news for the crypto, and by extension tech stocks, is that Citi says the TGA has now reached more than $900 billion, a level at which the Treasury typically has stopped the rebuilding process in the post-COVID period.
“This would suggest that liquidity conditions should improve going forward, which should support bitcoin, and could also get the NDX Santa rally back on track,” says Citi.
The markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is up, while oil prices (CL.1) gain ground and gold futures (GC00) are trading around $4,015 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 6720.32 -1.75% 2.56% 14.26% 12.09% Nasdaq Composite 23,053.99 -2.24% 0.13% 19.38% 19.64% 10-year Treasury 4.11 3.10 7.40 -46.60 -20.00 Gold 4012.5 -0.02% -0.57% 52.03% 49.07% Oil 60.16 -1.18% 3.30% -16.29% -14.58% Data: MarketWatch. Treasury yields change expressed in basis points
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Take control of your news. Make MarketWatch your preferred source on Google.
The buzz
U.S. economic data due Friday include the University of Michigan consumer sentiment survey for November, released at 10 a.m. Eastern.
Federal Reserve officials speaking Friday include Fed Vice Chair Philip Jefferson at 7 a.m., and Fed governor Stephen Miran at 3 p.m.
Tesla stock (TSLA) is slightly lower after investors approved Elon Musk’s $1 trillion pay package. Separately, Musk said Tesla plans an AI chip fabrication plant in conjunction with Intel (INTC).
The U.S. will block sales to China of some scaled-down Nvidia (NVDA) chips, according to a report.
Peloton Interactive shares (PTON) are jumping in premarket action after the fitness company beat first-quarter fiscal 2026 earnings estimates.
DraftKings stock (DKNG) is falling after the betting group trimmed its full-year sales outlook, as it invests more in prediction markets.
Expedia (EXPE) shares are jumping after the travel group gave upbeat guidance.
Best of the web
Beware the three Ls: leverage, liquidity and lunacy.
Blackstone is offloading a flopped $1.8 billion investment in senior housing.
The man who shaped the internet won’t be able to fix it.
How the lowly soybean got trapped in the crossfire of the U.S.-China trade wars.
The chart
It’s time to buy cyclical stocks says Jim Paulsen. Writing in his Paulsen Perspectives blog, the Wall Street veteran strategist argues that this weeks news of a jump in the Challenger Job Cuts Announcements index makes it more likely that the Federal Reserve will continue cutting interest rates, “helping to spike the punch bowl for cyclical companies.”
“Cyclical stocks have greatly underperformed this year, but with job losses mounting, during the months ahead, even the Mag7 may not be able to keep pace with old-line CYCLICALS!” says Paulsen.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name TSLA Tesla NVDA Nvidia PLTR Palantir Technologies AMD Advanced Micro Devices GME GameStop BYND Beyond Meat TSM Taiwan Semiconductor Manufacturing META Meta Platforms IREN IREN OPEN Opendorr Technologies
Random reads
Did you hear that?! Elf movie costume up for auction.
U.K. housing website’s AI travails highlights adoption angst.
‘Lion’ on the loose in Ireland was a big dog ‘with a fresh haircut.’
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
-Jamie Chisholm
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
11-07-25 0743ET
Copyright (c) 2025 Dow Jones & Company, Inc.