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Graphic by Ed Gabel/TIME


Let's start with some comforting news: a lot of stocks are doing well. Despite awful headlines and a palpable fear, the average diversified stock fund has fallen a manageable 13% in the past year. Meanwhile, if you owned Philip Morris, Duke Energy and Ralston Purina in that period, you made money. Good money. Of course, those stocks killed you the two years before that, so nobody really loaded up with them. Still, it's a mistake to assume that everyone is losing his shirt in this bear market.

Lots of people are doing well too. Job creation is growing at a faster pace this year than in the final months of 2000. Inflation is tame, and interest rates are falling fast, lowering the cost of mortgages and car loans.

Still, for those of you who got creamed in the stock market last week, here's a little more comfort: you've got company. Lots of it. Such meager solace won't put Junior through college or send Cisco back to $82, but it sure helps the ego knowing that tens of thousands of people clung to their tech stocks as desperately as you did for the whole bloody decline. How could they not? For years tech stocks were magical. Unimagined wealth was yours simply for logging on to the New Economy mind-set, clicking three times and whispering, "There's no place like a good home page."

Boy, did we buy that line! From the end of 1997 through March 2000, some $112 billion flowed into aggressive growth stock mutual funds, the kind that load up on the Yahoos and Akamais. Investors anted up $52 billion to buy 585 tech ipos during the same period--roughly the same amount spent on twice as many deals over the previous eight years. At the peak, just over a year ago, tech stocks accounted for 35% of the S&P 500's market value, up from 12% in 1995. It was a mania for the ages, and you were in the front row.

So where are all the dreamers now? Did someone ring a bell saying the jig was up, time to cash out? Nope. They never do.

Jose Aguayo, a New Jersey-based energy analyst, was one of those believers. He lost thousands in Lucent and WorldCom shares. "I felt very silly," he says. And chastened. Now the splurge money is gone, and Aguayo says he won't be going back into stocks anytime soon. His experience is common. Vaporized stock-market wealth is at $4 trillion and counting. The losses have engendered one of the fastest economic decelerations ever--from an annual growth rate last spring of 6% to near zero today. In a $10 trillion economy, that's a difference of $600 billion.

Right now, it's more important that folks like Aguayo buy socks--and shoes, and televisions and airline tickets--than stocks. Despite all the stock-market noise, consumer spending is still the linchpin of the economy. And scared consumers sit on their wallets. "We do not believe we are in a recession. But the economy is vulnerable to a decline, and the consumer is the key to preventing a decline," notes Steve Young, the director of asset allocation at Banc of America Capital Management in St. Louis, Mo. Want to help? Buy something. Buy two.

A great debate rages as to how the consumer drama will play out. The worry factor is not to be underplayed. Recessions and bear markets are as much about psychology as fundamentals, which is precisely why the stock market--unable to find something it can believe in--has worked up such a sweat. To that extent, the media may be fueling the pessimism. In January, TIME put the worried faces of a family of four on the cover and expounded on HOW TO SURVIVE THE SLUMP. More depressing has been the recent stream of daily headlines about plunging stock prices. And in a high-risk bid to win support for his tax cuts, President Bush has been sounding alarm bells that reach into every kitchen.

Indeed, both parties are trying to score political points from the economy's troubles. House majority leader Dick Armey is pushing for a higher tax cut than the $1.6 trillion Bush has proposed. The slowdown makes it more likely that tax cuts will come quicker and be retroactive to Jan. 1. But sliding stocks will make Bush's plan for Social Security accounts--ostensibly for stock investing--a tough sell.

Democrats are quick to blame Bush, claiming that all his talk of a worsening economy created a self-fulfilling prophecy. "The Bush Administration has been talking down the economy for some time," claims Senate minority leader Tom Daschle, insisting that consumer confidence dropped every time Bush or top aides gave gloomy forecasts--in November, when then vice presidential candidate Dick Cheney announced, "We may be on the front edge of a recession"; in January, when Treasury Secretary Paul O'Neill said, "There is no doubt that we are experiencing a slowdown"; and in February, when Bush claimed that "a warning light is flashing on the dashboard of our economy."

All this tea-leaf reading, and no one knows for sure if we will actually get a recession. One thing we do know: stocks are in their worst rout in two decades. The Dow's all-time high of 11,723 came on Jan. 14, 2000, and it has since fallen 16%. That's nothing compared with the 25% decline since last March in the more tech-exposed S&P 500. The tech-laden NASDAQ has plunged 63% since its peak a year ago, the worst drubbing for a major stock index since the Depression.

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