How Low Can It Go?

It’s hard to believe the Nasdaq was above the 5000 mark one year ago.

With Monday’s selloff making a mockery of the Nasdaq’s 2000 level, investors face the depressing prospect that other milestones will quickly be passed on the market’s breakneck journey south.

Already the 1900 mark is in sight, with the Nasdaq closing Monday at 1923. And while we may see some resistance today should buyers jump in, there are no indications that the market is near a real bottom.

Worse, with no strong positive catalysts on the horizon – save a likely interest-rate cut next Tuesday – even if there is a bottom, Internet stocks likely will flounder there for some time before generating upward momentum.

Here’s a big reason why: For the first time since Federal Reserve Board began tracking such data in 1945, household net worth declined last year, to $41.4 trillion from $42.3 trillion in 1999. Household net worth is determined by factoring assets such as homes and stocks against mortgages, credit cards and other liabilities.

This means less investing and lower levels of consumer spending, neither of which bodes well for an imminent market recovery. Indeed, the effects of lower spending should affect corporate revenue and earnings for several quarters to come, all the way up the food chain. That’s bad enough for the profitable ‘Net companies; for the bleeders, it’s downright ominous.

Even the biggest Internet stock cheerleaders concede as much now. Witness the astonishing comments by CEO Jeff Bezos on a BBC program to be aired Wednesday: ”We are not a stock that you can sleep will with at night. We think over time we’ll build a valuable company. But for a short-term investor, or for a small investor, I wouldn’t invest in Internet stocks.”

There it is. The chief executive of a major Internet player urging investors to avoid his company’s stock. It’s almost refreshing (though current shareholders and AMZN board members may beg to differ). Of course, it would have been nicer if Bezos imparted this valuable wisdom some months ago; fortunately, plenty of investors had already arrived at this conclusion without the AMZN leader’s latest input.

Welcome to Internet Stocks, circa 2001.

News Around the Web