SAN FRANCISCO -- So much for the respite. The quiet day market players and reporters were so eagerly embracing for the first half of the session took a decidedly loud turn for the worse (for those long) Tuesday afternoon.

When it was all done and said, the

Nasdaq Composite Index

was down 128.48, or 3.2%, its fifth-worst point decline ever. Blue-chip averages also faltered, but with far less speed. (See today's

Market Roundup for more details.)

To update

last night's recap, the Comp has now suffered three of its five worst-ever point declines and achieved its two best-ever point increases in just the past week.

"I didn't get a sense of panic, but the type of volatility we've seen has gotten people unnerved," said Bill Meehan, chief market analyst at

Cantor Fitzgerald

.

Another market strategist used the word "scared" to describe the mood among investors today. The source, who requested anonymity, noted the

Nasdaq 100

has formed a "perfect double-top" (a technical pattern suggesting the average has seen its highest levels for the short term) after shedding 4.7% today. "Buckle your seatbelts."

The continued fallout from

yesterday's mega-huge

America Online

(AOL)

-

Time Warner

(TWX)

deal was partially responsible for unbuckling Wall Street's confidence today.

Yesterday, some market watchers assessed the AOL takeover as justifying the valuations of online stocks. Today, others came around to a notion I alluded to last night: that AOL now must be judged differently, as must any other Internet company that ventures into more traditional spheres.

"The new company is clearly far different than AOL and therefore AOL's prior valuation metrics do not seem appropriate,"

Schroder

analyst Arthur Newman wrote in a report today. Newman downgraded AOL's 12-month price target to 85 from 105 and removed the stock from his recommended list. AOL fell 12.6% to 63 1/2, while Time Warner dipped 6.6% after yesterday's near 39% ascent. Schroder has done no underwriting for either company.

But volatility and the paradigm-bending AOL-Time Warner deal weren't the only things weighing on traders' minds today.

Take a deep breath and repeat after me: The bond market matters. (Repeat until it sinks in.)

The price of the 30-year Treasury bond fell 1 1/32 Tuesday -- a huge move -- with its yield rising to 6.67%.

"The action in the bond market is a problem," said Meehan, who seems to be returning to his bearish leanings after

recently expressing optimism. "As breadth improved last week, I agreed it was healthy. But it's hard to make a case the rotational action is sustainable if the bond market is a bottomless pit."

Aside from its feelings of insecurity following the stock market's huge gains in recent years, the bond market is dealing with a litany of "issues" right now. They include (but are not limited to): a

heavy calendar of new supply, hawkish comments last night by

Richmond Fed

President

Al Broaddus

,

concerns about

Federal Reserve

Chairman

Alan Greenspan's

speech on Thursday, worries the

Bank of England

will tighten when it meets on Thursday and a too-jammed-for-lunch

economic calendar for the remainder of the week.

Oh, yeah -- and the growing sense that the economy is not slowing and that the Fed will unleash a series of rate hikes starting at its Feb. 1-2 meeting.

"People are looking past this next meeting," said Barry Berman, head of stock trading at

Robert W. Baird

in Milwaukee. "The concern is there's inflation built into the economy and we'll continue to see negative numbers and interest rates will continue to go up."

That view perhaps explains why

Yahoo!

(YHOO)

shares tumbled in

after-hours trading tonight despite an apparently robust earnings report and a 2-for-1 stock split.

"You can tell by the rally we had

yesterday that the market will really move to the upside if we get some good news," Berman said. "But right now the market is looking for comfort. It doesn't take much to scare people."

The intent of this piece isn't to scare anyone. As I said yesterday, when

Lucent

(LU)

warned last week, many of us made the mistake of underestimating the investing public's willingness to buy dips. Until that trend dissipates or is proven imprudent (there'll probably be some cause and effect there), you -- and I -- have to give the market the benefit of the doubt.

But clearly something has changed since the seemingly endless run of higher highs for stock proxies -- the Comp in particular -- in the second half of 1999. That being the case, some investors may be tempted to shift some (some -- not all!) of their assets into less volatile stocks, perhaps even value stocks.

Speaking of which (nice segue, eh?), look for the promised interview with Dwight Anderson of

Tudor Investments

in this space Wednesday morning.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

taskmaster@thestreet.com.