The Nasdaq composite index fell as much as 108 points, or 4 percent, early in the day but managed to cut its losses and close down 11.73 at 2,395.92. The Standard & Poor's 500 index traded as low as 1,276.31 before bouncing back to finish 2.49 lower at 1,286.32.
The Dow Jones industrial average lost up to 142 points during the day, but bounced back to close down 40.66 at 10,621.35.
More than 1.84 billion shares exchanged hands on the Nasdaq, as 11 stocks fell for every eight that gained. Volume on the New York Stock Exchange topped 1 billion shares with 16 stocks advancing for every 13 that declined.
Despite a dramatic midweek surge last week--sparked by a surprise interest-rate cut from the Federal Reserve--the markets ended the holiday-shortened week lower. The Nasdaq and S&P finished down about 3 percent and 2 percent for the week, while the Dow fell 1 percent.
The Fed unexpectedly cut rates Wednesday, sending the Nasdaq up 14 percent--a one-day record for the tech-heavy index. But the markets have continued to slump since then.
"Seeing the rally from the rate cut evaporate last week, you had to expect a pullback this week," said Todd Clark, head of listed trading at WR Hambrecht.
Clark said investors are keeping assets in cash because of the negative climate surrounding stock, particularly tech shares.
Expectations of poor earnings are a major reason investors are hibernating for the winter.
Wall Street estimates fourth-quarter earnings for S&P 500 companies to grow 4.1 percent compared with growth of 21.4 percent for last year's fourth quarter, according to research company First Call. Earnings were also better for the previous quarter of this year, advancing 18.4 percent for the third quarter.
Analysts predict earnings for the 81 tech companies in the S&P 500 will grow just 3 percent for the fourth quarter compared with 15 percent for the year-ago quarter and 42 percent in the previous quarter this year.
Joe Cooper, senior research analyst for First Call, said tech earnings have increased about 15 percent a quarter since the early 1990s.
"The theory is that there'll be a rebound in the second half" of the year, he said, "But it will probably be the fourth quarter before we see a rebound in tech."
Cooper said one reason for the lag time is that it takes a few months for Fed rate cuts to boost the economy, and an additional quarter to appear in corporate profits.
Also Monday, comments from a Bear Sterns analyst on Dell Computer caused some turbulence in the PC sector. Analyst Andrew Neff cut his fiscal year 2001 earnings per share estimate to 87 cents from 92 cents, and fiscal year 2002 earnings to 90 cents from $1.05. Neff maintained his "neutral" rating on the stock.
Dell fell as low as $17.69 before a late rally pushed it up to a closing price of $19.13, a gain of 13 cents. IBM inched down 44 cents to $93.56, and Gateway lost 55 cents to $18.91. Hewlett-Packard finished up 75 cents at $31.38.
Of the 18 sectors tracked by CNET Investor, computer data-storage makers posted the sharpest drops, falling 3 percent. Semiconductor equipment makers were the day's largest gainers, climbing nearly 3 percent.
The CNET tech index squeaked up 1.21 to 2,070.27. Decliners and advancers finished in a dead heat, with 49 of the 97 stocks in the index rising, 44 falling and four remaining unchanged.
Communications-chip maker Broadcom did some post-Christmas shopping by acquiring ServerWorks in a deal valued at roughly $957 million. The company has bought more than a dozen companies in a little more than a year.
Broadcom shares rose $6.44, or 7 percent, to $93.44.
Software maker SAP also rose after announcing that fourth-quarter revenue will grow 27 percent to about $2 billion. The company will release more earnings details Jan. 23. Shares of SAP rose $6.88, or about 24 percent, to $36.13.
Investors did not treat other stocks as kindly.
New Era of Networks fell $2.41, or nearly 44 percent, to $3.09 and hit a new 52-week low of $3.03 compared with the stock's high of $96.25 during the same period. The software company announced Friday after the markets closed that fourth-quarter earnings will miss Wall Street expectations.
Ameritrade also had some gloomy news for the new year. Because of slower-than-expected growth in online trades, the Internet broker will cut 230 full-time positions and 120 part-time positions. The company's shares fell 22 cents to $8.63.
BEA Systems fell $7.19, or 13 percent, to $46.44 after Prudential Securities analyst Kris Tuttle cut his 12-month price target on the stock to $85 a share from $100. Tuttle maintained his "strong buy" rating on the software maker.