All Eyes on the Red-Hot Internet Sector

There seems to be no stopping them: The .coms keep pushing forward, boosting the major indices.
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It will be interesting to see how many mutual funds will show that they own Internet stocks in their year-end statements.

The suggestion they'll be trying to make will be that they've owned the darn things all along. "Look how savvy we were," the statements will suggest, "to have held stock in 1998's hottest sector."

In the low-volume days that span the gap from Christmas to New Year's, price moves can get awfully exaggerated. When we are talking the Internet, where there is already a lack of liquidity, the spikes are remarkable. In a broader market plodding forward with the usual upward bias this time of year, the .coms are flying. On Wall Street's half-staffed floors, bored traders were sitting pretty much idle at midday, chewing the fat and watching as the

Amazons

(AMZN) - Get Report

,

Yahoos

(YHOO)

and

America Onlines

(AOL)

of this world flash a familiar green.

"We're all sitting around watching Internet stocks go up," said one tech trader, "just to have something to do."

There are a few reasons for the climb. Internet retailers are widely reported to have had a very good Christmas. AOL's addition to the

S&P 500

on Jan. 1 continues to help buoy its shares higher and generate interest in the entire sector. And then there are those mutual fund managers, trimming their portfolios with Internet stocks.

"They're all going to want to say, 'I was the smart guy too. I had

eBay

(EBAY) - Get Report

, I had Yahoo!, I had Amazon,'" surmised Courtney Smith, chief investment officer at

Orbitex Management

. "People want to show they had the hot stocks for the year. I think this is going to be Internet fever for the next week as people window dress."

It's not a good strategy, thinks Smith, who says that he has never engaged in the end-of-quarter tidying up that his peers do -- though when it comes to the hedge funds he manages, he is happy to take advantage of the resulting stock moves. And indeed it seems an especially questionable practice this year. There is the statement, rife with Internet stocks. And there is the return which, once again, has underperformed the

S&P 500

-- leaving investors wondering what to think.

TheStreet.com Internet Sector

index was lately up 5%, again leaving its brethren market measures in the dust. The

Dow Jones Industrial Average

was up 24 to 9242 while the S&P 500 was up 2 to 1228. The tech-febrile

Nasdaq Composite Index

was up 24 to 2187. The small-cap

Russell 2000

was up 2 to 408.

Hidden beneath these upward-moving measures, though, was some pretty lousy breadth. Decliners led advancers 1,503 to 1,332 with 254 million shares crossing hands on the

New York Stock Exchange

. In

Nasdaq Stock Market

activity, decliners beat advancers 2,090 to 1,787 on 436 million shares.

A recovery in Japanese government bonds overnight helped renew interest in Treasuries. The 30-year was up 20/32 to 101 3/32, dropping the yield to 5.18%.

Monday's Midday Movers

By

John J. Edwards III

Markets Editor

"What's today's

K-tel

(KTEL)

?" asked a West Coast colleague stranded at

LAX

. Not to cast aspersions, but we've got to say it's

SkyMall

(SKYM)

.

The in-flight catalog company said it expects its 1998 Internet sales to be up 600% to $2.1 million vs. the year-ago figure. Given that the statement included "Internet," "600%" and a dollar sign, the market in its wisdom took SkyMall up 33 9/16, or 265.8%, to 46 3/16 at last count.

Elsewhere online,

E*Trade

(EGRP)

was up 15 3/4, or 35%, to 60 3/4 after saying 500,000 people have signed up for its

Destination E*Trade

financial services site.

Ameritrade

(AMTD) - Get Report

was up 5 1/8, or 17.7%, to 34 1/4 and

Charles Schwab

(SCH)

was up 7, or 11.6%, to 67 3/8.

... and the Net taketh away:

Ziff-Davis

(ZD)

was down 2 3/4, or 13.3%, to 18 after

Morgan Stanley Dean Witter

downgraded it to neutral from outperform. The stock ran up last week after Ziff-Davis announced plans to spin off its online group,

ZDNet

.

In other news:

Cephalon

(CEPH)

was up 1 3/16, or 14.7%, to 9 1/4 after the

Food and Drug Administration

approved it to market

Provigil

, a narcolepsy drug.

E-Tek

(ETEK)

was up 4 1/16, or 17.8%, to 26 7/8 after

Goldman Sachs

initiated coverage at market outperform.

IMC Global

(IGL)

was up 1 1/2, or 7.6%, to 21 1/8 after the company agreed to sell its soda ash and boron chemicals units to a management-led group for about $520 million.

Kaynar Technologies

(KTIC)

was up 2 5/8, or 10.7%, to 27 1/4 after

Fairchild

(FA)

agreed to acquire it for $28.75 a share, or $267 million. Fairchild was up 1/2 to 14 3/8.

Trans World Airlines

(TWA)

was down 1/8 to 5 1/16 after a holiday weekend sickout by flight attendants forced it to cancel 200 flights.

Volvo

(VOLVY)

was down 1 5/8, or 6.4%, to 23 7/8 as investors took profits after a run-up on speculation of a merger with

Ford

(F) - Get Report

. Ford was up 3/4 to 59 5/8.

Earnings movers

KN Energy

(KNE)

was down 2 5/16, or 6%, to 36 after saying its 1998 earnings will be 20% to 30% below 1997's $2.45 a share. The nine-analyst estimate called for $2.61. KN cited warm weather, falling natural-gas processing margins and lower transportation revenue.

Premisys

(PRMS)

was down 1 9/16, or 15.7%, to 8 7/16 after warning that it expects to report second-quarter earnings of 8 cents to 10 cents a share. The eight-analyst view called for 16 cents vs. the year-ago 15 cents. The company cited international order weakness. Separately, the company said President and CEO Nick Williams is recovering from frostbite and has been communicating with top management from the San Francisco hospital where he's being treated.

SPX

(SPW)

was up 3 1/2, or 5.6%, to 66 9/16 after announcing it will take a fourth-quarter charge of $210 million to $250 million to restructure its former

General Signal

operations and close General Signal's headquarters. The company, which said it will cut 1,000 jobs over the next half year, also backed a full-year 1999 earnings estimate of $4.85 a share. The six-analyst

First Call

view calls for $4.83.