Investors know that at some point the stock-market bear will retreat into the woods and a bull will come charging across the field.
But will that bull be more like a cow docile, less vigorous?
The "irrational depression" mentioned by New York Stock Exchange Chairman Richard Grasso last week could be dissipating. A whiff of encouraging news Wednesday sent stock prices soaring.
But that doesn't necessarily mean a return of the "irrational exuberance" that Federal Reserve Chairman Alan Greenspan spoke of in 1996.
During the long bull market from 1982 to early 2000, the financial markets rewarded American investors generously. A portfolio of 60 percent stocks and 40 bonds generated an average annualized return of more than 15 percent per year.
"Glorious," note two Goldman Sachs & Co. economists.
But Bill Dudley and Jan Hatzius suspect the nation now faces "a very different era of diminished financial asset returns." Maybe the long-term return on corporate shares will be about 6 percent per year in current dollars, 4 percent after inflation, they say. That return would be the sum of the yield from dividends, about 1.5 percent now, and the long-term growth rate of real dividends and corporate earnings.
Nor are large returns from bonds likely, the two argue.
Robert Conlon, a Hong Kong-based manager of the Investec Asia Focus Fund, also sees "at best" a 6 percent average return for stock investors ahead, based on real growth in gross domestic product averaging 3 percent a year and 3 percent inflation.
The stock market, he says, is in a "post-bubble environment."
Much hangs on the performance of corporate profits and the economy.
Dean Baker, an economist at the Center for Economic and Policy Research (CEPR), has long held that with an aging population, economic growth in the United States is bound to slow in the years ahead and thus corporate earnings and stock-price gains will be much tamer.
That's relevant to proposals to put Social Security tax money into stocks.
A recent report by CEPR found that if 2 percentage points of Social Security payroll taxes had been diverted into private accounts invested in stocks in 1998, American workers would have lost $31 billion as of June 30, 2002 and even more at the moment.
The flop in the stock market has badly damaged support for privatization of Social Security. Americans now know the market has big downs, not just ups.
At this time, Mr. Baker suspects the wealth effect of the stock-market boom, which swelled consumer purchases in the late 1990s and 2000, is being reversed.
"Very likely we will have a second dip" back into recession, he says.
That is a minority view among economists. Most expect the recovery to continue, though at a relatively slow pace for the next several months.
John Puchalla, senior economist at Moody's Investor Service in New York, sees the "underlying pace" in economic activity as still improving. But he is concerned that if the slide in the stock market again picked up, it could prevent a recovery in capital spending and weaken consumer confidence enough to slow household spending.
"It is a major risk, but not one that cannot be overcome," he says. Interest rates remain low, helping housing, notes Mr. Puchalla. The weaker dollar should stimulate US exports. Fiscal policy is stimulative.
Economists at Goldman Sachs see the bear market having "significant consequences" for the real economy in three key ways.
It will prompt people to raise their personal savings rate, and thereby slow their spending.
Because corporate pensions funds invested in financial stocks and bonds are not growing as handsomely as they did in the 1990s, companies will have to contribute more money to these funds, hitting earnings. Most companies have been counting on 8 to 11 percent annual returns on these pensions funds. They may get only about 6 percent.
Because governments tax stock-market-related proceeds, such as capital gains and stock-option profits, they will have less revenues. State and local governments will especially cut spending because of their need to balance budgets.
Has the bottom been reached and is it time to get back in?
Many Wall Street analysts are reluctant to make that guess.
Mr. Baker suggests, "Wait and see if it falls further. There is not a big rush. I wouldn't worry about missing the train."
But he does find encouraging that stocks are "no longer hugely overvalued. The market is at a level which makes sense." But prices still could fall further.
"Investors need patience and courage," holds Alan Skrainka, chief market strategist with Edward Jones, a major brokerage firm based in St. Louis. "Patience, because this stormy market is not going to last forever. Courage, because bear markets grind away at investors' confidence and generate a lot of fear."
He figures the economy remains in a solid recovery and that the current quarter will be the "last awful quarter" for corporate earnings.
In his testimony to Congress July 16, Mr. Greenspan noted that profits as measured by the Department of Commerce in its national accounts "have increased sharply since the third quarter of last year, partly reflecting the dramatic jump in productivity and decline in unit costs." He also pointed to the revelations of misleading accounting practices at some firms, raising investor skepticism.
CEOs and chief financial officers in 1,000 companies are mandated by the Securities and Exchange Commission to attest to the accuracy and honesty of their companies' most recent financial statements by August 14. Analysts suspect some downward revisions in earnings will occur.