The Dow Jones industrial average fell 165.24 points to 10,293.50. The Nasdaq composite index lost 61.43 to 1,966.36, falling below the 2,000 mark for the first time in two weeks.
On the economic front, the beige book, an anecdotal survey of economic trends from the Federal Reserve that came out at 11:15 a.m. PDT, indicated more trouble for the economy. It said the economy remained slow in June and July, and that problems in the manufacturing sector have started to spread into other areas of the economy.
Earlier in the day, a report showed inventories on U.S. wholesalers' shelves fell slightly in June while sales tumbled, mainly due to slower sales of durable items. Wholesale inventories fell 0.2 percent to a seasonally adjusted $302.30 billion in June, after gaining a revised 0.3 percent in the previous month, the Commerce Department said. The inventory decline was slightly larger than expected.
In the tech sector, Cisco shares were the second most actively traded on the Nasdaq, slumping $1.28 to $17.98. The CNET networking index shed around 3 percent, and the communications services and wireless indexes also fell.
On Tuesday, Cisco reported fourth-quarter earnings of 2 cents a share, excluding one-time costs, on revenue of $4.3 billion. The results were in line with First Call estimates.
Most analysts, however, were focused on outlook. Cisco CEO John Chambers said sales in the company's fiscal first quarter would be flat to down 5 percent. Chambers declined to provide an earnings outlook or guidance beyond that, though he did say the company could grow in the 30 percent to 50 percent range in the long run.
Analysts were mixed on the results, and many cut their estimates. Gerard Klauer Mattison analyst Michael Cristinziano said Cisco's quarter was "less worse." He lowered earnings estimates and said the company's business could get worse before it gets better.
Cisco's earnings also affected other networking-related stocks, notably Juniper Networks. Chambers said that Cisco managed to regain 3 percent to 5 percent in market share from Juniper. Shares of Juniper were off $2.43 to $23.47.
At the U.S. Bancorp Piper Jaffray conference in Boston, Juniper CEO Scott Kriens declined to comment on talk about Cisco's market share. He said the company is focused on customers, not competitors.
Wall Street was also closely watching communications chipmakers, which count Cisco as a major customer. Broadcom slipped $2.47 to $42.91, PMC-Sierra fell $1.30 to $35.13, and Applied Micro Circuits was off 5 cents to $12.30.
Storage and software
Among other stocks in the news, Sun Microsystems rose 17 cents to $17.25 after inking a strategic pact with Hitachi.
The news hit EMC hard. The storage giant, down $1.37, or 8 percent, to $18.21, is expected to face increased competition from the deal. Storage was the hardest-hit sector Wednesday, with CNET's storage index down around 6 percent.
Exodus Communications shares, the most traded stock on the Nasdaq, continued to gain, up 24 cents to $2.30, on published reports that the company has landed additional financing and could be a takeover target.
Software stocks took a hit as BEA Systems fell $2.76 to $19.79 after Prudential Securities cut its estimates over concerns about weak information technology spending. Analyst John McPeake said he expects BEA to hit its fiscal second-quarter estimates but predicted that backlog will fall.
BEA is expected to report earnings of 9 cents a share for its July quarter.
Other software stocks were mixed. Siebel fell $3.78 to $30.69, Oracle lost 94 cents to $16.30, Veritas Software fell $4.19 to $38.99, and Ariba slipped a penny to $4.28.
Staff and Reuters contributed to this report.