Net Trading Passion Appears Passe

New data show how reluctant investors are these days to go near Internet stocks.

Trading in shares of Net companies is down 34% during May, meaning online brokers will probably report their second-ever quarterly decline in transactions, Credit Suisse First Boston said Monday.

So far this month, trading in shares of 409 Internet companies has averaged 259.7 million a day, compared with a record daily average of 390.9 million in April, CSFB said. Last week, trades averaged 269,800 a day, up 6% from the previous week but down 40% from the week ended April 20.

“The sequential decline was actually sharper and more dramatic than we would have expected,” said James Marks, the CSFB analyst who compiles the statistics. “Unless Nasdaq rebounds almost immediately, you’re likely to see a sequential-quarter decline for the online brokers.”

Online brokers’ transactions last declined in the third quarter of 1999. Clients of online brokers tend to be the most active in the trading of Internet stocks.

The Nasdaq composite index has sagged nearly 13% this month after dropping 15% in April, its biggest monthly decline since August 1998, as investors have abandoned technology stocks on fears of higher interest rates and increased competition from traditional companies.

Shares of online brokers have been hit hard. E-Trade Group Inc. (ticker symbol: EGRP), for example, is down 49% since late March.

CSFB may reduce earnings estimates for online brokers, though investors have already reduced their expectations, Marks said. Companies can’t escape the impact of a broad decline in financial markets even though they’ve added a variety of services such as mortgages and mutual funds, he said.

“The whole business rotates around market performance. It’s going to be affected by the market in some degree or another, whether it’s transaction revenue or margin interest. You can’t reduce operating expenses as fast as the market drops.”