Last week, technology stocks actually benefited from fears that the

Federal Reserve

would aggressively raise interest rates because tech stocks would show greater growth than more traditional companies. Today, there were concerns about the Fed. Face it, the market fixates on whatever it wants whenever it wants, taking whatever angle it wants to take on something, leaving investors frustrated and unsure what to do next. Internet Sector

index closed down 1.84, or 0.2%, at 869.22, though that was 30 points away from its low of 839.20, as tech stocks recovered in the last half hour of trading. The

Nasdaq Composite Index

ended down 78.14, or 2.1% at 3707.31, but traded as low as 3592.79.

The DOT suffered only a modest loss due in part to gains in



, a member of the index that closed up 6 11/16, or 16.5%, at 47 1/4. There was a minor news item on the company teaming with

a provider of environmentally cleaner energy, to promote energy products throughout the Lycos Network, but that did not appear to be responsible for the gains. Lycos Chief Operating Officer Edward Phillip was on the road talking to investors yesterday, according to the company, and must have said some pretty good things.

And a couple of online music companies also bucked the trend.



closed up 17/32, or 25%, at 2 21/32. Emusic and

yesterday announced an alliance with


(MSFT) - Get Report

to provide music content to the music guide of Also,


finished up 1 1/2,or 16%, at 10 3/4. The company's chairman and CEO, Michael Robertson, appeared on CNBC today and discussed a recent lawsuit filed against it by the recording industry.

Among stocks on the decline,

(AMZN) - Get Report

ended down 2, or 3.6%, at 54 1/8,

Internet Capital Group


dropped 3 1/4, or 7.6%, at 39 5/8; and


(AKAM) - Get Report

dropped 13 1/2, or 13%, to 91 7/8.

While we are reluctant to carry comments from sell-side analysts who often pump stocks they have done underwritng for, there were a couple of notes worth mentioning.

The first, from

Merrill Lynch

analyst Henry Blodget, reads like a State of the Union address on the Internet sector. It's titled "Is the Honeymoon Over?" which seems a little silly because it's pretty clear to us that the honeymoon is over. Nevertheless, he makes some solid points in the report.

Blodget wrote that the Internet was in a transition to a more mature phase of growth. The transition coincides with an increase in competition and a difficult market environment and is "creating a shakeout and consolidation in the Internet sector." He wrote that the shakeout presented an opportunity for long-term investors to purchase the leading Internet companies, in which fundamentals remain strong. He advised investors to focus on earnings power as a "key factor" in appraising potential investments.

Blodget focuses on the three subsectors of the Internet sector, e-commerce, infrastructure and business-to-business, and lists his favorites. For e-commerce players, Blodget wrote that he sees only the leaders thriving, and named

America Online






(AMZN) - Get Report

. In a chart of 13 "core" Internet holdings, Blodget also mentioned a couple of other e-commerce names,




(EBAY) - Get Report

and Lycos.

In the infrastructure space, he recommended





(INSP) - Get Report

, while in the B2B space he highlighted






. Among the other stocks on his core holdings list were




Exodus Communications


and Internt Capital Group. Of all the companies mentioned, Merrill has done underwriting for AOL,, Lycos, DoubleClick, Inktomi, ICGE and Ariba.


Goldman Sachs

e-commerce analyst Anthony Noto attempted to defend online-commerce names in the event of a slower spending environment. The report was in response to a note from the Goldman Sachs retail research group, which

downgraded retail stocks in anticipation of slower consumer spending.

"In general, we do not believe the potential slowing spending environment will have a meaningful or significant impact on the higher growth rates of consumer e-commerce companies," he wrote. "We believe that the rapid growth phase of consumer e-commerce companies is insulated from slower spending growth because current online spending rates are driven by online penetration, technology enhancements and product availability as opposed to wage growth, installment debt, and consumer confidence."

Noto then listed a couple of commerce names and potential impact. He wrote that a slower spending environment would have a positive impact on because of its appeal to price-sensitive customers. It also would have a positive impact on eBay, he wrote, because of the second-hand nature of its products. He also saw a positive impact for



. But Noto saw a neutral to negative impact on both Amazon and



because they sell in economically sensitive categories. Goldman has done underwriting for eBay, priceline, WebVan and eToys.