After bouncing around the break-even point for much of the day, the Nasdaq composite index dipped in late trading, losing 82.06 to close at 3,896.35. About one stock rose for every two stocks that fell on the Nasdaq, which posted a modest volume of about 1.48 billion shares. The Standard & Poor's 500 index dropped 6.65 to 1,487.85.
The Dow Jones industrial average fell 25.16 to close at 11,195.49 led by Hewlett-Packard and IBM. HP fell $7 to $114 and IBM dropped $4.75 to $124.75.
"It's a weird market," said Bill Meehan, chief market analyst at Cantor Fitzgerald. "There was no fundamental news to account for the Nasdaq rallying then slowly eroding."
Meehan believes that investors are divided over the health of the tech sector. "There's quite a bit of disparity between analysts over (the strength of) PC and chip demand and what you pay for these stocks," said Meehan.
To Meehan, every investor seems to have an opinion. "I can ask the guy on the corner who sells hot dogs about Cisco, and he'll tell you it's a great buy."
The main source of anxiety is the upcoming third-quarter earnings season. "Investors are a little concerned about the profit outlook," said Brian Rauscher, an investment strategist at Morgan Stanley.
Investors also are looking beyond the current quarter into next year as earnings announcements provide clues on what shareholders can expect in the future.
"The markets are sitting here in no-man's land," said Bryan Piskorowski, a market strategist at Prudential. "The key hurdle is where corporate America stands in terms of fourth-quarter and year 2001 earnings growth."
Yet some analysts say that the current ill tidings are typical leading into earnings season as some companies announce negative forecasts to prepare investors for the bad news.
Rauscher says the market usually runs up before pre-announcement season until a high-profile company pre-announces a shortfall, which fuels investor doubt over the health of corporate profits and sparks a sell-off.
Overall, Rauscher expects solid earnings growth but believes that jitters from one negative earnings pre-announcement will cause a temporary sell-off.
"I'd almost be willing to bet you beer on it," said Rauscher.
Pre-earnings season anxiety definitely hit the large capitalization stocks today. At the end of regular trading, Intel closed down 69 cents at $64.69 and Microsoft dropped 50 cents to $68.81. Network equipment maker Cisco Systems closed down $2.69 at $61.19 on a volume of 53.3 million shares, making it the most actively traded stock on the Nasdaq. Sun Microsystems dropped $6.31 to $114.44.
Covad Communications defied the gloom by rising $2 to $20.38 on volume of about 27.9 million shares, more than five times the average daily volume.
Local phone giant SBC Communications agreed to invest in Covad and signed a six-year, $600 million agreement with the company to jointly deliver high-speed Internet connections. SBC rose 62 cents to $45.68.
Next Level Communications shares rose $15.19, or almost 27 percent, to $72.44 after the company said South Korea's Hansol Electronics will buy more than $80 million in gear for video and high-speed Web services.
The CNET tech index lost 74.77 to close at 3,101.84. Losers handily thumped winners, with 72 of the 97 stocks in the index falling, 21 rising and four remaining unchanged.
Of the 18 sectors tracked by CNET Investor, server-hardware makers and wireless companies posted the sharpest drops, falling about 4 percent each. Computer-aided design and manufacturing companies were the day's largest gainers, climbing a slim 0.60 percent.
Among members of the CNET tech index, ADC Telecommunications fell $2.94, or 8 percent, to $32.69. Desktop publishing software maker Adobe Systems also dipped $6.63 to $127.25.
Optical network equipment maker Ciena fell $15.63 to $184 on volume of about 12.9 million shares, nearly twice the stock's average daily volume.
The Philadelphia semiconductor index fell 9.69 to 1,030.27, led by chipmaker Micron Technology, which lost $3.63 to close at $65.38. PMC-Sierra closed down $6.38 at $208.50.