Net Stocks Remain in Rally Mode After Benign PPI Report

Despite today's jump, some are still skeptical about Aug. 24 Fed meeting.
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Internet stocks were in rally mode today after a nonthreatening

Producer Price Index

report this morning.

TheStreet.com Internet Sector

index was up 16.39, or 3.2%, at 522.91.

Sara Zeilstra, Internet analyst at

Warburg Dillon Read

, isn't like many Net analysts who tend to sugarcoat what's going on. She admitted that the sector "bounced back more quickly than we anticipated," but wasn't convinced that the move was sustainable. Her skepticism stems from ongoing uncertainty about what the

Federal Reserve

is going to do Aug. 24 as well as the rest of the year. Forecasters still see the Fed raising interest rates by 25 basis points later this month but are uncertain whether another 25-point move is in the cards. The Internet sector has been sensitive to changes in interest rates, and higher rates contributed to the recent slide.

"I wouldn't be surprised if there weren't some more hiccups with the Fed coming up in a couple of weeks," Zeilstra said.

Indeed, while the market was able to rally on benign inflation data today, it will face another key test when the

Consumer Price Index

is released Tuesday morning. Strong numbers would wipe out any of the positive sentiment seen today.

Zeilstra said even though it was a little early for a back-to-school/pre-holiday run in Internet stocks, it could be that the "absolute worst" for the sector was over. Zeilstra added that in the near term, she didn't expect the sector to be quite as volatile as it has been, particularly because so many people were hurt so badly during the selloff.

"From the individual-investor standpoint, they may have gotten their first real taste of 'what goes up must go down,' and they may be more careful in the near term about trading these names," she said. "But in this business, people have short memories and if enough momentum starts coming back and a cheery outlook starts to permeate the investment community, it might become a factor once again."

Price action today suggests some enthusiasm, though there has been little follow-through buying after this morning's push. Net bellwethers were leading the sector rather than dragging it down, though secondary Net stocks were thriving as well.

There has been a revival among online brokerages, which were particularly hard hit by interest-rate concerns and fears that stock-market weakness would translate into a decline in trading.

Schwab

(SCH)

helped relieve some of those pressures Thursday, when it reported that its July trading volumes improved by 19% over June. Today, Schwab was up 2 3/4, or 7%, at 43 3/4. Also,

E*Trade

(EGRP)

was up 1 9/16, or 6%, at 25 15/16.

Ameritrade

(AMTD) - Get Report

was up 1 3/8, or 6%, at 23 7/8 and

National Discount Brokerage

(NDB)

was up 2 1/8, or 7%, at 34 1/16.

Among the other standouts were a number of companies that recently went public but were punished along with the rest of the sector during the slide.

MP3.com

(MPPP)

was up 3 13/16, or 12%, at 35 13/16;

Hoover's

(HOOV)

was up 2 1/16, or 20%, at 12 7/16; and

homestore.com

(HOMS:Nasdaq) was up 2 7/8, or 12%, at 27.

Success continued for this week's red-hot IPO,

Red Hat

(RHAT)

, up another 12 1/2, or 17%, at 85 1/8. Success of Red Hat also was helping a couple of other IPOs today. Two providers of e-commerce software made their debuts.

Quest Software

(QSFT)

was up 33 1/2, or 239%, at 47 1/2, while

Active Software

(ASWX)

was up 4 5/8, or 42%, at 15 5/8.