NEW YORK (CNNfn) - After a decade of stock market gains, the latest tumble puts major U.S. equity indexes back to where they were in 1999, setting the stage for Wall Street's worst year in almost two decades.
Losses of billions of dollars are never without consequence. But for a nation where more individuals own stock than ever before, the declines take on added weight.
Psychologically, Americans may learn to expect less from equities amid a time when bonds, real estate investment trusts, and utility shares have outperformed the major indexes.
"Five years of having equity market growth of 25 percent a year seems to be a thing of the past," said John Lonski, senior economist at Moody's Investors Service. "The law of long-term averages is reasserting itself."
Many stock options, the carrot dangled by technology companies to recruit employees, are now worthless, setting the stage for a possible talent drain. And Vice President Al Gore, whose tenure overlapped a record-breaking bull market has seen the Nasdaq composite index slide more 38 percent since March, possibly upsetting a presidential race he once seemed to own.
 At one point Wednesday, the Dow Jones industrial average fell below 10,000 for the first time since March. And the S&P 500 is now 8.8 percent lower on the year. That decline -- if it holds for 10 weeks -- would make 2000 the worst year for the index since 1981, when the S&P, which accounts for 75 percent of the market's value, lost 9.7 percent.
The speculative bubble, if it hasn't burst, is highly deflated. Gone are the heady days of late 1999 when a little known initial public offering, VA Linux (LNUX: Research, Estimates), soared more 700 percent in its first day of trading. Gone are the first 10 weeks of 2000, when the Nasdaq set 17 record high closes.
"We have been victim of the success of the markets," said Ned Riley, chief investment strategist at State Street Global Advisors.
Riley says the effect of the market losses, something new investors have never swallowed, could pack the economic blow of a half percentage point interest rate hike.
Stock declines could mean less consumer spending amid a time when economists agree that the bulging portfolios of the late 1990s bolstered optimism and sparked extra purchases.
A year of losses could slow consumption by Americans, who account for about two-thirds of the nation's gross domestic product. Some of these declines are dramatic. A $10,000 investment in Amazon.com (AMZN: Research, Estimates) at its high of $113 would be worth $2,040 today.
The road ahead
"The major question is: Is there more damage to be done?" said Riley.
His answer: Probably. Riley sees most of the speculative froth gone from the market. But a little may be left to let out.
 Consider Yahoo!, one of the rare Internet companies that makes money. The leading portal posted $81.09 million in net income in its latest quarter. Like many in its sector, Yahoo! (YHOO: Research, Estimates) has now fallen to it lowest levels in 52 weeks. But despite the losses, it still trades at 116 time earnings, a relatively lofty level that keeps it vulnerable to more selling.
A lot has changed since Yahoo! surged to $250 late last year. Interest rates are higher due to a Federal Reserve campaign to keep inflation from derailing a record economic expansion. Europe's currency, the euro, fell to lifetime low this summer, hurting profitability at many multinational companies. And oil prices recently rose to 10-year highs, increasing costs for businesses and possibly slowing consumer spending.
Blue chip companies from Intel Corp. (INTC: Research, Estimates) to Apple Computer (AAPL: Research, Estimates) to Eastman Kodak (EK: Research, Estimates) have readied Wall Street for lower earnings and lost big portions of their market values in the process.
Losses to Lucent Technologies (LU: Research, Estimates) and Microsoft (MSFT: Research, Estimates), some of the most widely held and dependable performers, have gutted pension funds and 401(k) plans nationwide.
The declines, said State Street's Riley, may reinforce many of investing's basic rules, including the importance of diversification among different sectors and keeping investing goals long-term as opposed to day-to-day.
In one sense, investors haven't "lost" money unless they needed to sell stocks for income. In the words of the Wall Street Journal's Jonathan Clements, investors have only lost time, in that many portfolios are back to where they where 18 months ago. And from the perspective of time, the Dow Jones industrial average is still up roughly four-fold since 1990.
A silver lining
The last time the S&P 500 lost value was 1994. It has more than tripled since then.
The recent declines tell an incomplete story. Drug stocks have surged this year. The Vanguard Health Care Fund, one of the biggest specialty stock baskets, is up 46 percent in 2000. Utility shares gained while fixed-income securities rocketed. Pimco, the nation's biggest bond holder, has seen its long-term Treasury fund jump more than 12 percent this year.
No, 12 percent isn't the Nasdaq composite's 86 percent surge in 1999. But it's a lot better than the tech index's 21 percent loss this year.
State Street's Riley sees positives ahead. Interest rates could fall, he believes, while oil prices might drop amid slackening demand. Both developments could bring back to the equity markets the billions of dollars in cash that have fled.
 And then there's the calendar. September and October, two of history's worst months in the markets, are followed by two of the best.
Al Goldman, chief investment strategist at A.G. Edwards, is sanguine.
"Step back and look at the big picture," he told CNNfn's In the Money. "The big picture for the American economy remains positive."
The nation's unemployment rate fell to 3.9 percent in September, matching a 30-year low. Aside from higher oil prices, inflation is moderate. And fourth-quarter profits among companies in the S&P 500 are seen growing 14.5 percent, according to earnings tracker First Call, compared to 21.3 percent actual growth in the year-ago period.
"I would buy," Goldman said.
Still, Moody's Lonski is concerned the labor market could loosen. "The only thing that would worry me is where or not the latest slump triggers another wave of corporate downsizing and hiring activity," he said.
Lonski likes the municipal bond market, where interest is tax-free.
"They may sound boring," said Lonski, but a guaranteed yield looks competitive.
Getting technical
As a technical analyst, Joe Kleinerman of Chase Securities forecasts the market's future by looking at patterns of markets past. The past cycles tend to reassert themselves, giving market historians a crystal ball.
The charts, he said, don't look great. In the near-term, he sees the Nasdaq dropping to 2,865.
"I can not rule out a low of 2,745 by the middle of next week," Kleinerman said.
He expects the Dow to reach to the 9,450-level before both the indexes bounce back by year's end.
But don't expect a great 2001.
"We will close below the previous year's low next year," Kleinerman predicts.
That would be unusual but not without precedent. The last time the S&P 500 lost value during back-to-back years was 1974. 
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