(FORTUNE Magazine) – Wall Street brings to mind iconic images of ruthlessness (Michael Douglas in the eponymous movie), epic tales of arrogance (Liar's Poker, Barbarians at the Gate), or sordid stories of greed (equity analysts and their buy ratings.) But uncertainty? Never. Which is why it was so unnerving the week the markets reopened--a week when the Dow dropped almost 1400 points and nearly a third of the stocks traded on the NYSE and the Nasdaq hit 52-week lows--to ask the Wall Street sages where they thought stocks would go. "I don't know," many said. "Wall Street is known for being very sure of itself," says Martin Barnes, managing editor of The Bank Credit Analyst. "But now it's absolutely not sure at all."

Some strategists, most notably Goldman's Abby Joseph Cohen, have since reiterated their faith in equities. But the prevailing attitude remains one of uncertainty. No wonder. Many of the mantras that have substituted for analysis in recent years--"Buy on dips," "Don't fight the Fed"--now sound utterly absurd. And yet there are no easy substitutes. It's difficult to gauge what a cheap stock is, much less to identify the long-sought bottom. "We lost our valuation rudder on the way up, and we've lost it on the way down," says Andrew Bischel, president of SKBA Capital Management. The sense of being lost in a strange new world is intensified by the fact that most investors--individuals and professionals alike--have no experience in an environment where stocks don't go up. "Anybody who's been in the business a long time always says that the market vacillates between fear and greed. For the first 15 years of my career, I had no idea what they were talking about," admits Kevin Parke, chief investment officer for MFS.

The current state of fear is, of course, intimately linked to the events of Sept. 11. It's already become a cliche to say that the world changed that day, but let's be honest here: We don't yet understand the full extent of that change. This is especially true in the realm of economics. Yes, consumer confidence has cracked, and most economists agree that we're headed into a recession. But it's too early to predict how steep the slide will be or how long we'll be stuck at the bottom. And the speed with which everything disintegrated--Nasdaq 5,000 was only 18 months ago--is shocking. Karl Mills, vice-chairman of Juricka & Voyles, likens the current environment to the skyline of New York City: "All you see is a dust cloud, and you remember the days at the peak of the Nasdaq when you thought you could see forever." Those who are moving ahead despite the uncertainty--like one portfolio manager who's aggressively buying cyclical stocks because he believes the economy will pick up in early 2002--acknowledge that all bets are off if there's another terrorist attack. "I'll be selling hot dogs," this manager says.

It's interesting--and to some, disconcerting--that in the face of all this, our love affair with stocks hasn't yet evaporated. No one is talking about the death of equities. And stocks, by any conventional measure, still aren't cheap. According to Salomon Smith Barney/DRI, the market capitalization of U.S. equities is about 120% of GDP. That's below the peak of 185% reached in early 2000 but well above the historical average (dating back to 1952) of around 60%. P/E ratios tell a similar story. Cliff Asness, a managing principal of New York hedge fund AQR Capital Management, points out that everyone has a different way to measure the "E"--last year's earnings, next year's estimates, a ten-year average, etc. But, he says, using most reasonable methodologies, if you go back to the 1800s, the current P/E of the S&P 500 still ranks around the 95th percentile.

P/E ratios remain high because while stock prices have declined, earnings have cratered. Any hope for a near-term rebound has been cut short by the horror of the World Trade Center attacks. Since then, 39 S&P 500 companies, from Ford to Boeing to AOL Time Warner, have warned that earnings will not meet previous expectations, says First Call. Merrill's chief economist, Bruce Steinberg, who originally thought S&P 500 operating earnings would shrink 22% in 2001 (which already would have been the worst annual earnings performance on record), now expects a 27% plunge.

The market is an anticipatory creature, and at some point it will anticipate an uptick in earnings. Hence the phrase "Look over the valley," which basically means to ignore the ugly present and focus on the prettier future. But first, the present has to stop deteriorating. "The market never ignores incrementally bad news," says Merrill's chief quantitative strategist Rich Bernstein, who adds that the market has never actually "looked over the valley"--instead, it bounces around the bottom waiting for a sign that good news is coming. In the absence of that, some money managers are trying to value stocks by calculating "normalized" earnings. Clearly, the $150 million that Morgan Stanley estimates the attacks will cost it (not to mention the lost trading revenue from the four day shutdown) isn't normal, nor is the fact that Federated's sales at its flagship Manhattan stores were running 40% below plan in the wake of the attacks. But as one manager says, "If the world doesn't return to normal, then normalized earnings aren't the thing to look at."

This isn't necessarily as dark and depressing as it sounds. High P/E ratios and hard-to-predict earnings don't necessarily mean that stocks have further to fall. Inflation is low, and the Fed is still cutting interest rates, which most agree, at least in the short term, justify higher P/E ratios. Still, much of what triggered the long bull run in the first place was the decline in inflation and interest rates--and there's no more room for dramatic downward moves. Since 1982, long-term interest rates have fallen from 10% to 4.75% and inflation from around 7% to around 2% to 2.5%, says The Bank Credit Analyst's Barnes. That's why he says unequivocally: "The long-run bull market that began in 1982 is over. That doesn't mean we're going to have a long bear market, but it does mean if there's a new bull, it will be a very different animal."

Perhaps the brighter news is that there may be redemption of sorts in all of this, a shift away from some of the practices that governed the way Wall Street operated during the bull years. "It was such a momentum market that people stopped doing their homework," says Eli Salzmann, a portfolio manager at Lord Abbett. Groupthink prevailed. People valued stocks by assuming that if a company's revenues increased 30% last year, they would do so forever after. Most disconcerting of all, for a short time such an approach actually worked. Not anymore. "There's been a sea change in the way people focus," says Phil Dow, Dain Rauscher Wessel's director of equity strategy. "Everyone, including me, is trying to figure out how not to make the mistakes of the past few years."

Money managers all have slightly different takes on how to avoid those mistakes. Dow predicts a renewed emphasis on a company's business--what its opportunities are, how those can be quantified, and how they compare with the competition--to replace the previous obsession with price targets. "Own companies rather than trading stock certificates," he advises. U.S. Trust's chief investment officer Fred Taylor expects that parsing balance sheets and cash-flow statements will become more important than parroting management's estimate of earnings. "Bottom line, you will see better analysis from the sell side," he predicts. For investors, that is nothing but positive. Even if the market remains difficult, there will be companies that outperform the averages. As research becomes more firmly rooted in reality, analysts will find them.

Some money managers even expect to have more fun, once fundamentals start to matter again--and quick-buck artists are flushed out. "People thought of the market as a tourist attraction," Parke says. "Now, the tourists are leaving, and the market will be nicer when they're gone."