BBS News

April 4, 2000

As US stocks go into freefall, investors are once more asking the question - has the internet stock market bubble finally burst?

The US technology index, the Nasdaq, fell more than 500 points on Tuesday, before rebounding to close down 74 points at 4148.

The drop was triggered by a court case ruling against computer software giant Microsoft on Monday.

So far, Microsoft has taken the brunt of the blame for the sell-off.

But, while Judge Jackson's ruling on Monday might have provided the trigger, the news hit a market that was already fragile.

Exiting Nasdaq

Last week, investors were already starting to exit Nasdaq, as market gurus Abby Joseph Cohen at Goldman Sachs and Mark Mobius at Templetons Fund warned that technology stocks were overpriced.

"In hindsight, technology shares had been ripe for a correction," Scott J.Brown, chief economist at Raymond James & Associates in St Petersburg, said. "The Microsoft news merely provided a handy excuse."

Pressure builds

Technology stocks have been under pressure for several weeks.

Many of the newer companies in the sector have not made a profit. Until recently, their shares had risen, as investors bought them, both on expectations of future growth and in the belief that the market would continue to rise.

Many analysts now welcome the fall in value, as it may bring the shares closer to a more realistic and sustainable level.

"This is classic panic selling," Tony Dwyer, chief market strategist at Kirlin Holdings said. "This has nothing to do with Microsoft. This has to do with a Nasdaq market that investor euphoria sent to unsustainable levels."

If technology stocks suffer, then other businesses do as well.

Shares of banks and brokerages were sold off on Tuesday, amidst fears that the market for new equity offerings might dry up.

Given the growth in new share offerings from internet companies, this has been a lucrative source of earnings for banks.

Where next?

Most stock market analysts agree that there are many internet stocks that will stand the test of time, and who with time, could even prove to be undervalued.

Analysts noted that the sell-off on Wall Street may lessen the chances of the Federal Reserve raising interest rates again at its next meeting on 16 May.

The US central bank has raised rates five times since last June, in a bid to cool the booming US economy.

The White House said it will not comment on the stock volatility, but said it is watching financial markets and oil prices.

"I do not think that one should judge the strength of the fundamentals of our economy based on the movement of the market over a one-day or even a one-month period," said top US economic advisor Gene Sperling.

"Almost all major forecasters have, if anything, improved their forecast over the last couple of months," he added. "So I think that the underlying fundamentals of our economy remain quite strong."

Copyright 2000