For traders, who profit from sharp movements in either direction, today was a dream come true as the market's recent tepidity gave way to some

serious volatility. But for investors, who are long by definition, the session was anything but dreamy.

Amid accounting concerns and other issues, the

Dow Jones Industrial Average

fell 2.5%, the

S&P 500

shed 2.9%, and the

Nasdaq Composite

lost 2.6%.

Measures of implied volatility, which had been subdued recently, also reflected the session's drama. The Chicago Board Options Exchange Volatility Index rose 20.6% to 26.26, while the CBOE's Nasdaq Market Volatility Index jumped 6.8% to 45.90.

"I think what happens is at the tail end of every bear market you have a little bit of panic; this is what's happening now," said Stanley Nabi, who oversees $4 billion in value funds at Credit Suisse Asset Management. "But this too shall pass. I don't think we're on the cusp of major collapse in the market."

Specific issues weighing on the averages included:

Tyco , down 19.9% after a critical article in The Wall Street Journal and ongoing concerns about its accounting.

Cendant , down 10% amid rumors of forthcoming negative news coverage about its accounting, of which the company denied any knowledge.

Williams , down 22.2% after it delayed the reporting of its earnings because of questions about its obligations to Williams Communications , which fell 17.8%.

WorldCom , down 12.9% amid rumors its debt ratings are going to be downgraded, rumors that Standard & Poor's denied.

J.P. Morgan Chase , down 6.6% amid ongoing concerns about its exposure to Enron , Kmart , Global Crossing and Argentina.

PNC Financial , down 9.4% after being forced to restate its earnings.

IBM , which fell 4.8% after announcing Lou Gerstner will retire as CEO on March 1.

"Some people have learned to shout 'fire' in the middle of a packed movie," Nabi said with obvious frustration. "At Enron maybe there was fire, but in the case of Tyco and similar companies there is no fire."

The strategist recalled that the

Securities & Exchange Commission

reviewed Tyco's accounting in 2000 and found no evidence of wrongdoing.

Credit Suisse Asset Management is long Tyco.

Predicting that major averages won't revisit their September lows, Nabi argued that "a lot of stocks here have gotten to point where they're downright cheap."

Among them are

Citigroup

(C) - Get Report

and

Bank of America

(BAC) - Get Report

, which both underperformed the Philadelphia Stock Exchange/KBW Bank Index's 5% decline today.

Other names he mentioned included

General Mills

(MIS)

,

Heinz

(HNZ)

,

Kimberly-Clark

(KMB) - Get Report

,

United Technologies

,

Bristol-Meyers Squibb

(BMY) - Get Report

and

Merck

(MRK) - Get Report

.

Credit Suisse has long positions in each.

According to Nabi, there is a "considerable amount of value" in the market right now. Excluding the 30 companies that are not profitable, the remaining 470 companies in the S&P 500 are trading with a forward

price-to-earnings ratio of under 18, "which is not high, given the current level of interest rates," he argued.

Certainly others feel differently.

"The reprieve rally from September is over," commented Woody Dorsey, president of Market Semiotics. "The majority assumed that we were in a new bull market. But the divergence between P/E ratios and earnings reality is being recognized as unsustainable."

Who's Zooming Who?

Given what's transpired at Enron, among others, the nervousness investors are showing toward stocks with even a whiff of accounting issues isn't surprising. Concurrent with that is a less obvious trend whereby positive economic news is not only failing to aid the stock market but contributing to its weakness.

The trend re-emerged today as stocks stumbled despite stronger-than-expected reports on both durable goods and consumer confidence.

A week ago, I

wrote that what's going on is a "large-scale example of 'buy the rumor sell the news.'" I'm sticking to that theory until convinced otherwise. Specifically, traders bought stocks in the fourth quarter in anticipation of an economic recovery early this year. But now that the recovery is apparently at hand, they are selling out of fear that the recovery will be insufficient to justify equity valuations.

Inherent in that mind-set is a fear that improving economic trends will push bond yields higher, a move that would make equity valuations even less attractive. But the bond market rallied today, as the selloff in stocks overshadowed concerns about the economy.

The price of the benchmark 10-year Treasury rose 25/32, to 100 8/32, its yield falling to 4.96%.

The shifting allegiances of hedge funds explains the somewhat counterintuitive development of stocks falling and bonds rallying amid positive economy news, according to Don Coxe, chairman and chief strategist at Harris Investment Management in Chicago. What's moving the market is "asset allocators playing the performance of one asset class against another vs. being serious investors," he said.

In the fourth quarter, such participants were buying equity futures and selling Treasury bond futures, playing off the hopes for an economic rebound, Coxe said, reiterating a view

expressed here on Dec. 17.

Now, he said, they are doing the opposite: "If I were a hedge fund, that's what I would be doing." Today was a "big day," Coxe surmised, predicting that bonds are likely to rally further. "The trend is your friend."

Of course, today's trend isn't friendly for those long equities.

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 invites you to send your feedback to

Aaron L. Task.