Neither a huge deal in the drug sector, nor a smattering of solid earnings, nor more platitudes from President Bush could keep stock proxies from their appointed rounds with sharply lower levels midday Monday.

As of 1:48 p.m. EDT, the

Dow Jones Industrial Average

was down 3.7% to 8358.96 after having traded as low as 8333.41. The

S&P 500

was down 3.5% to 889.36, vs. its earlier low of 887.07, while the

Nasdaq Composite

was off 2.4% to 1340.92 vs. an earlier nadir of 1337.60.

The stock market's latest slide was precipitated by -- and alternatively contributed to -- another big drop in the dollar, which fell to parity with the euro for the first time since February 2000 and breached its September lows vs. the Japanese yen. As of 1:30 p.m. EDT the euro was trading at $100.007, while the dollar was recently at 116.18 yen after having earlier traded below its September low of 115.76 yen.

"Today's move has a lot more to do with pervading dollar gloom than with any euro-phoria," commented Anne Mills of Brown Brothers Harriman. "A weekend to reflect" on the stock market's

worst week since after the Sept. 11 attacks "has not helped dollar sentiment today."

The yen rallied despite "verbal intervention" from Japanese officials and the threat of renewed action from the Bank of Japan, Mills observed. The dollar's move toward 115 yen "may invite intervention," she suggested, "but that's a long way from a certainty,

and traders were more concerned about the dollar, and it was again one-way traffic."

The stock market was also pretty much a one-way affair early Monday, despite potentially uplifting news of

Pfizer's

(PFE) - Get Report

buyout bid for

Pharmacia

(PHA)

. Pharmacia was lately up 19.3%, but Pfizer was down 12.6%, and the Amex Pharmaceutical Index was off 5% despite speculation of further consolidation in the sector.

Other potentially favorable developments that failed to support stocks included positive earnings reports from firm such as

Fannie Mae

(FNM)

and

Banc of America

(BAC) - Get Report

and the president's speech.

President Bush said the economy is "fundamentally strong" and has the "foundations for growth." But the speech was little more than a rehash of his

comments last week, particularly in terms of concrete action to restore investors' faith in corporate America. Tellingly, the market's reaction was the same.

Perhaps the statement that resonated most with traders was Bush's acknowledgement the economy is suffering from a "hangover" from the "economic binge" of the 1990s.

Many bearish observes have said for some time now that

the history of other post-bubble eras suggests the U.S. stock market and economy will suffer an extended period of weakness as the excesses from the 1990s are wrung out. Such histories are being increasingly discussed in the media and have contributed to an ongoing exodus from stocks by retail investors.

Still, amid the ongoing carnage in equities (and as was the case in other post-bubble eras), many market watchers continue to forecast better times ahead, soon, for stocks.

Thomas McManus, equity portfolio strategist at Banc of America Securities, today raised his recommended equity allocation to 60% from 55%, simultaneously lowering bonds to 30% from 35%. Cash remained at 10%.

McManus, who had raised equities to 55% from 50% on

June 10, cited improving valuation, noting that the median price-to-earnings ratio of profitable stocks in the Value Line Index fell from to 16.8 as of Friday's close from an average of 20.5 during April and May. Over the same time frame, he noted, there was "little deterioration of earnings estimates" while investor sentiment weakened noticeably. McManus observed the spike in the CBOE Market Volatility Index in recent weeks; of late, the VIX was up 8.4% to 41.55.

In lowering his recommended bond weighting, the strategist suggested the 10-year Treasury note is "overpriced," given his three-to-five year inflation forecast of 2.8%. Amid rumors of a potential

Fed

rate cut and selling by foreigners warily watching the dollar, the long end of the bond market wasn't benefiting from the decline in stocks. Of late, the benchmark note was down 5/32 to 102 5/32, its yield rising to 4.59%.

McManus has been one of the more accurate Wall Street strategists in recent years -- bullish until early 2000 and then increasingly and steadily bearish since (save for a few exceptions). Thus, his call for higher equity exposure today encouraged some participants. But the strategist's rising optimism again suggests that many observers -- including

several previously bearish forecasters -- are trying to call a "bottom" in the stock market rather than worrying about the potential for additional declines.

Time will tell whether such an outlook is prudent -- the history of stocks' long-term performance vs. bonds suggests it will be. But the early returns haven't been terribly encouraging.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.