Stock Bubble Bursts On Rate Fears

What many saw as “frothy” valuations and unexplained euphoria finally got creamed today as Internet stocks joined the broader market sell off with Wall Street reacting to the fear that interest rates may be rising.

Despite the fear, many observers believe that the Fed’s meeting on May 19 will not produce a hike. The fear of the Fed was enough, however, to cause the market to cash out a little after its strong run year to date.

The Dow Jones Industrials dropped nearly 200 points to 8,870 and NASDAQ lost more than 60 points to 1,806 in intraday trading.

Keeping in line with the mood of the market, Internet stocks took a bath also–ISDEX was down 9 to 151 before regaining some ground at 152 in intraday results.

Of the 50 stocks in the index only one is up today, CyberGuard (NASDAQ:CYBG), up 16% to %16.375 per share as of 3 PM Eastern.

Biggest decliners in ISDEX include turnkey Web presence provider USWeb (NASDAQ:USWB), down 12% to $23.875 per share, and music e-tailer CDnow (NASDAQ:CDWN), off 11% to $24.625 per share.

Today’s drop underscores a profit-taking trend among some of the recent high flyers including the search and navigation stocks.

Infoseek (NASDAQ:SEEK), in particular, is off considerably from its all-time high of $45 per share hit April 16 as it traded today at $29.625 per share, down 4% on the day and 34% off its high.

The handful of stocks in this sector–Yahoo! (NASDAQ:YHOO), Lycos (NASDAQ:LCOS), and Excite (NASDAQ:XCIT)–also declined between 3% to 7% today.

Year to date ISDEX is still up more than 50%, so while the correction shaved off some of the excess, the long-term outlook remains unchanged.

For 15-minute delayed quotes on ISDEX, Internet Stock Index, click here.