Having just returned from a trip to Boston and meetings with some of Boston's best investors, I came away thinking about how the market has changed in obvious and subtle ways since April's melodramatic plunge.

Here are some straws in the wind to consider:

  • Stock averages wobble closer to the lows of mid-April than to the highs of the first quarter.
  • Daily trading volume has slipped, falling to levels last seen during the quiet Christmas week.
  • Individual stocks trade listlessly. Bids can be scarce. More people want to be on the sidelines. A rich man who owns thousands of shares of Oracle (ORCL) - Get Report, Nortel (NT) and other dinged-up technology stocks walked into a Goldman Sachs office yesterday and told his broker, "I stayed too long in these stocks. I knew they were overvalued and I stayed too long." He blew out the positions.
  • Volatility has diminished as fear has given way to a weird mix of complacency and anxiety. People are anxious about the weakness in their tech holdings, but complacent enough not to sell.
  • Stock mutual fund inflows slow. Janus says it will close three popular funds, presumably because the managers have more money than brilliant investment ideas.
  • The inflation news is increasingly disquieting. Wal-Mart (WMT) - Get Report tells investors in a conference call yesterday that it sees no slowdown in consumer spending and is raising prices. The Federal Reserve's Beige Book also reported anecdotal evidence of worsening economic strains nationwide. Interest rates are rising, and the Fed will all but certainly boost short-term rates by 50 basis points when the FOMC meets Tuesday.
  • Even Wall Street's perpetually bullish strategists are toning down their exhortations, although few have yet changed their buy recommendations.

Admittedly, my having joined


only six weeks ago informs my perspective on the market. The

Dow on March 31 stood at 10,921.92 -- 3.6% above yesterday's close -- and the

Nasdaq Composite Index hovered at 4572.83 -- 28% higher.

Since then the market has acted like a manic-depressive deprived of lithium. The next three weeks were chaos in the markets and to some extent in our newsroom as we struggled to keep up with the markets' gyrations. The Nasdaq, in particular, began to move so dramatically that daily drops or rises (mostly drops) of 1%, 2%, 3% started seeming normal.

Things have slowed some, although the tech-focused selloff that's continuing today has stealthily brought the Nasdaq within clear sight of its April lows. Whether this is the end of the correction or the beginning of something worse, no one knows. But consider for a moment the rumblings of the Bostonians.

Massive Overvaluation, Rampant Speculation

One is a growth stock investor who has been compounding his clients' money at well over 30% a year since the 1970s. Even after the recent declines, he sees massive overvaluation and rampant speculation. In a bit of rhetorical hyperbole, he said, "This will be over when I see a story in

The Wall Street Journal

announcing that a mutual fund has found a new aggressive technique to boost its performance -- put 30% of its money into cash." (And just so you don't think this guy is some old fogey who can't play in the market, he is up more than 40% so far this year.)

Others of the value persuasion saw excess not only in tech names but also in big-cap stocks, offering

General Electric

(GE) - Get Report

as an example. They critiqued GE as an overpriced, slow-growing industrial company with a highly leveraged financial arm. The folks in Boston said they are foraging elsewhere -- in small-caps, chemicals, energy, real estate and thrift and insurance conversions.

My takeaway from the trip to Boston? There are some intelligent people who think that the market bubble has been pricked but not popped. They foresee further declines. They do not expect the Fed to engineer a perfect soft landing for the economy. Instead, they foresee higher-than-expected interest rates, a bear market and a recession within 12 to 18 months. (Similarly, in


most recent

You Said It poll, 51% of respondents thought that the Fed's tightenings would slow the economy either close to or into a recession.) Only after the speculative desire has been crushed, they say, can there be a bottom. And then? A new bull market.

The current correction may be just that -- a correction, not a bear market. As the market slides lower, however, the bearish scenario is worth considering.