ISDEX Gives Back Four, Keeps Forty

Ouch! If it hurts the market this much when wages rise only 3 ticks more than expected, how bad will the pain be when inflation actually starts to pinch?

Internet stocks were hurt as much as every other market sector yesterday. It
was news from the Labor Department that inflicted the wound: the Labor
Department said its Employment Cost Index (ECI) rose 1.1 percent in the second
quarter. The estimates were calling for lower results; a CBS
MarketWatch survey of economists predicted only a 0.8 percent jump.

In another kick to the market, the Commerce Department said gross domestic
product (GDP) rose at a 2.3 percent annualized rate for the second quarter,
below the expected 3.4 percent gain.

Problems? Probably not. The ECI is still relatively healthy. It is up only 3.2
percent on an annual basis for 1999, which is down from the 3.5 percent annual
growth rate in wages which was posted a year ago.

Obviously, the market is jumpy and eager to lock in profits. No wonder.
internet.com’s ISDEX is still up a robust 40 percent for the year, even
after yesterday’s dismal close (down 19 points for the day (that’s just
over 4 percent). Internet stocks were nicked but they were far from bloodied.

It’s impossible to say if this is a bottoming out period. ISDEX has had two
peaks this year. It rose to 664.5 on April 12 before dropping to 499.6 less
than a week later, and then rose to 637 by April 27.

Today’s climate for Internet stocks has changed because with the current
extreme interest, volatility is higher than it ever was before. Volumes are
higher and price swings are more extreme. But the long term prospects for
Internet companies hasn’t changed. The growth curve is still young.

Investors who are ready to spread their bets more widely without giving up on
long term Internet potential should take note: the Investec Guinness Flight ISDEX mutual
fund launches today. It will try to mirror the performance of
internet.com’s ISDEX.