THE economic bears are playing havoc on Wall Street these days, pushing stock prices generally downward. Many private investors in the market are now heading for the hills to seek safety in money market accounts and bank certificates of deposit. Investors are worried about conflict in the Gulf, the adverse impact of rising oil prices on the US inflation rate, the tardiness of Washington to produce a meaningful deficit-reduction agreement, and poor third-quarter corporate earnings reports. On the earnings front, reductions and omissions of dividends are at their highest level since 1982, according to Standard & Poor's Corporation.
Nor, say the experts, is there yet any sign of relief for the beleaguered equities market - as measured by such popular indexes as the Dow Jones industrial average. On Wednesday, the Dow closed at 2,387.87 points. The Dow has dropped 20 percent since its all-time high of 2,999.75 points on July 17.
Even if the Middle East crisis is resolved or the budget impasse settled, ``it seems unlikely that a rally in equities will be sustained for any period of time,'' says a prominent strategist with one of the largest Wall Street investment houses. And the prospect of a flat or barely expanding stock market, the strategist notes, is the ``best-case scenario.''
Under the ``worst-case scenario,'' the market may drop a lot farther, perhaps down to the 1,800 point level on the Dow, says the strategist, who prefers not to be identified.
``It's possible that the market could drop as low as the 1,500 point level on the Dow before there is a shift from a bear market back to a bull market,'' says Dave Davis, a money manager based in Rochester, N.Y. Mr. Davis also edits ``Switch Fund Timing,'' a market newsletter.
Davis says the ``typical'' bear market lasts about one-third to two-thirds as long as the bull market that preceded it. Thus, assuming that the seven-year bull market of the late 1980s began in 1982 and ended in late 1989, the current bear market has at least a year to a year-and-a-half left to go, he says.
Davis says many of the underlying weaknesses in the United States economy, such as the declining real estate market, will intensify as the economy softens and unemployment spreads. Davis has moved out of the equities market for now.
That view is not at all accepted by the major investment houses, which underwrite and sell securities. The broad consensus among investment-house market technicians is that the stock market will probably start to rise during the late winter months into early 1991 - particularly if the recession that many economists now see turns out to be mild. They recommend selective buying. Still, according to this consensus view, the market is not expected to climb soon to the 3,000 point level registered this past summer. Rather, the outlook is for a lackluster market.
``I'm convinced that most of the heavy liquidation [in the market] has been done,'' says Gene Jay Seagle, who heads up technical research for Gruntal & Company, an investment house. Mr. Seagle believes the market is in its final ``capitulation'' phase before resuming its ascent. But he is not sure whether the current bear market will end ``with one final high-volume climax, or go out with a whimper.'' For individual investors, money managers note, the difference between a ``high volume climax,'' and a ``whimper'' could be substantial, in terms of paper losses on their assets.
The first two to three years of every decade since World War II have been ``relatively poor for American equities,'' notes Barton Biggs, director for worldwide strategy for Morgan Stanley & Co. Inc. Most of the money made in the equities market, says Mr. Biggs, has occurred in the last two-thirds of each decade. He wouldn't be surprised if the same pattern holds true in the 1990s.
``I see the market holding at the 2,300 point level,'' says Rao Chalasani, chief strategist at Prescott, Ball & Turben Inc., an investment firm. ``We believe that a recession will be over by the end of the first quarter and that it will have proven to be very shallow.''