Internet stocks performed so well in January, it was tempting to think the worst of the ticker slide was over and that the market had found its bottom.
But a brutal week for ‘Net companies and their investors raises the sobering spectre that Internet stocks are headed even lower than they finished last year.
Through Thursday’s trading, internet.com’s Internet Stock Index was at 363, barely above its Dec. 31 finish of 361. The Nasdaq, meanwhile, settled at 2562, just 3.7% above its year-end close of 2470. In January, the ISDEX had gained 18%, while the Nasdaq climbed 12%.
All this was after the Federal Reserve lowered interest rates on Jan. 31. Whatever optimism that move engendered was more than offset by gloomy forecasts from Internet companies for the next two quarters, along with continued signs that the overall economy is slowing and possibly slipping into a recession.
With the Q4 earnings season mostly behind us, the kind of negative catalysts that have been dragging down the market – Cisco Systems missing quarterly estimates for the first time in nearly four years, layoffs from Razorfish, CacheFlow, CNET and others, a Lehman Brothers report that Amazon.com will soon face a severe cash crunch – should ease. Hopefully, that means ‘Net shares will stabilize and perhaps even begin rising, if not surging, again.
However, more bad economic news regarding consumer confidence and spending and other macro indicators likely will short-circuit any genuine rallies over the next few weeks. And before we know it, Q1 reports will begin trickling out, undoubtedly validating previous warnings about sluggish (or even negative) revenue growth and mounting losses.
I think the real danger, though, lies in the middle part of the year. Many Internet companies are telling investors they can’t offer guidance beyond Q2, while Cisco goes so far as to maintain the downturn should ease by the second half of 2001.
What happens when June comes and there’s no end in sight to the economic slump? That’s a question few ‘Net investors want to ponder.
