Respite or Rally?

With 38 of 50 companies leading the charge, internet.com’s Internet
Stock Index fought back Thursday, ending five consecutive days of losses
by closing up 28.44, or 7.02%, to 433.57.

While Thursday’s percentage gain was larger than any single-day
percentage loss since July 28, the ISDEX is still below Monday’s average
price, and well below last Friday’s (July 30) price.

Overall, of course, the ISDEX is up this year, but the percentage gain
in 1999 has dropped from 40% through the July 29 close to 28% after
Thursday’s trading ended. Through Thursday, the ISDEX was 35% below its
peak this year of 664.5 on April 12.

As we stated last week, it is impossible to say whether the recent slump
in Internet stocks has fully played out. Thursday’s strong rally is
encouraging, especially as it came on a day when the federal government
released a report showing lower productivity and rising labor costs in
Q2, a combination that economists warn can trigger inflationary
pressures.

But all bets may be off until later in the month, when Federal Reserve
Chairman Alan Greenspan is expected by many to announce a hike in
interest rates.

While such a rate increase concerns some investors, others argue that
the Internet stock market already took the Fed action into account
during its steep plunge of the past three weeks.

With the Q2 earnings season behind us and an anticipated increase in
fall e-commerce activity several weeks away, we may be in for continued
volatility for the rest of August.

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