"The stock market has predicted nine of the last five recessions," the economist Paul Samuelson once said, and people have been parroting him ever since. Not without reason -- Wall Street has a tendency to view the market as a crystal ball, and it probably should be disabused of this notion whenever it pops up.

Yet Samuelson's remark also somehow misses the point. The market is less a soothsayer than an oddsmaker, and as a bookie it tends to do a pretty good job. Take 1994. The market had a rough year, and to some it looked as if it were saying that the economy would contract. But from another perspective, what the market was really saying was that the

odds

of a recession were higher. And in fact, with the

Federal Open Market Committee hiking rates aggressively, those odds

had

gone up. Stocks went down for the same reason as a heavily favored team's spread would come in if its best receiver blew out his knee.

Now the situation is similar to 1994. The

Fed is raising rates, and the stock market is discounting the possibility of a recession. And make no bones about it, the possibility of a recession has increased.

As a rule of thumb, the chance of a recession 18 to 24 months out when the Fed starts tightening is about 1 in 5, according to

Morgan Stanley Dean Witter

chief economist Steve Roach. "When the Fed ups the dosage, I'd raise those odds to 1 in 4, possibly 1 in 3," he says. "They'd like a soft landing, but this isn't science. This is a lot of art and hocus-pocus. The risk is that just as easing cycles often overshoot, tightening cycles often do the same thing."

It looks like the Fed

is

about to up the dosage. With a soft

retail sales

report and a pretty tame

Producer Price Index

aside, economists still think that the central bankers will raise the target

fed funds rate by a half point, to 6.5%, when they meet on Tuesday. And it is generally reckoned that there will be more to come.

How much is unclear -- some economists think the funds rate will top out at 6.75%, others think it will go as high as 7.5%. What actually happens will be highly dependent on the economic data that comes out over the next few months. The Fed will want to see real signs of slowing and a series of reports that say its efforts are working. And investors will start worrying that

Alan Greenspan, in his efforts to control a nascent blaze of inflation, is forgetting about ice.

"There's a pretty strong link between how much the Fed tightens and the risk of recession," says Henry Willmore, senior economist at

Barclays Capital

. If rates don't go any higher than 6.75% -- a total of 200 basis points from their low last year -- there's little chance of the economy contracting. "But," Willmore notes, "if the ultimate amount of tightening is 300 basis points or more, I'd have to say the odds favor recession."

At this point, Willmore is leaning toward the former scenario, and a soft landing for the economy. Even economists who think that the funds rate will go up to 7.5% --

Salomon Smith Barney's

Mitchell Held, for instance -- don't rate the chances for recession very highly.

For stocks, however, what matters is that the odds of a recession, even if fairly marginal, are higher. "In the same manner that people talked about it but it didn't happen

in 1994, I think there are certain hasty conclusions that are being arrived at right now," says

DLJ Asset Management

Vice Chairman Stanley Nabi. "I don't doubt that is going to dampen the environment for stocks."

Nabi believes that the stock market's downturn has farther to go, that there will be more talk of ice on Wall Street. But just as in 1994, with the recession that never happened, this will create an important buying opportunity.

"By the end of the year," says Nabi, "we'll be in the clear and moving up."