Let's see, the

S&P 500

is up 18% and the

Nasdaq Composite

is ahead by 35% since the low point reached on Sept. 21. These numbers are taken by some observers to be

prima facie

evidence of market insanity and just cause for prudent investors to be very afraid. Two or three years of average returns achieved in only two months? In these miserable business conditions? No sensible person can justify it. Mood-altering substances must be involved.

It is not easy to justify the market's recent performance, but it is less difficult to explain it. It's called rebound. Bounceback. Does an errant 3-point attempt stick to the backboard? No, and neither does the market, viciously knocked down, stay knocked down. It bounces back. The spectacular returns measured from Sept. 21 don't feel quite so special to those who got in, say, late in August. They are roughly back to even. Owned 'em for six months? You're down about 10%. Held 'em for a year? You've lost about one-eighth of your money in the broad market, and fully one-quarter if your stake was in the higher-octane Nazz.

Terminal point sensitivity. By carefully selecting the date you choose to measure from, you can demonstrate virtually any return performance you'd like to highlight. Sept. 21 is a valid and particularly interesting terminal point, but it is not the only one, and it's not especially relevant to long-term holders of an asset class whose major indices are flat over three years.

Sept. 21 is of particular interest because it marks a low that, in my judgment, will stand up against a future test and will therefore establish itself as the ultimate bottom of the great 2000-01 bear market. You're free to agree with me. Or not. My judgment arises from the facts that an 18-month bear market was in place when the nation was attacked, and that among the reactions to the attack was an emotional, panicky selling wave on huge volume. A catharsis like that punctuates a long trend -- but oh how I wish in this case we could still be struggling along without the clarity that 9/11 provided.

Unless you believe that the Sept. 21 low, or something lower still, is the "right" valuation for the market, you shouldn't be too frightened, or thrilled for that matter, by the bounceback performance of the past nine weeks. How someone chooses a terminal point as a base from which to measure performance to Friday's close says more about that person's state of mind than it does about the market's future direction.

It may be a lot tougher going forward to match the recent bounceback gains, but positive returns even of modest scale will be a big improvement over 2000 and 2001. The market is roughly back to its pre-9/11 level. T-bond yields too are roughly flat against early September. Money market rates are way down. Credit spreads have tightened in a bit. The dollar is a touch stronger. Crude oil is a lot cheaper. Broad commodity indices are generally lower, but industrial metals prices such as aluminum and copper have soared in November in what looks like a trend-breaking move. Earnings were terrible in the third quarter and look to be much worse in the fourth as 9/11 losses, charges and adjustments get swept into what just may be a cathartic quarter for the bear market in profits.

Any and all of these considerations might go into a "valuation model" for U.S. equities, and right now they amount to quite a mixed bag. The key is earnings. Just as 9/11 had a knock-down effect on the market, so too did it have that effect on the economy and on profits. The National Bureau of Economic Research, or NBER, has, in its semiofficial authority, now dated March 2001 as a peak in economic activity, which means the recession is now eight months old.

In what amounted to an aside, the eminent economists on the business cycle dating committee commented that had it not been for the attack on America, the slowdown might have been too mild to have qualified as a recession. I mention it because it corroborates a view that I have expressed, and helps to support the argument that 9/11 accelerated the correction process, in the economy as in the market, that had been under way for many months.

The fact that the average postwar recession has lasted 11 months is interesting but not necessarily pertinent to the current setting. What is pertinent is that businesses have been cutting back on orders, on production, and on employment in an urgent manner. Business sales continue to run well ahead of business production -- inventories have been destocked so aggressively that a restocking spring has been coiled for 2002 production; output and employment will have to pick up just to keep the shelves bare.

Like the shelves, the P&L and the balance sheet have been swept of much detritus; comparisons going forward will be much easier. If there is any merit at all to the productivity improvement that goes under the rubric of "operating leverage," earnings next year should meet, or beat, the estimates that are built into current market prices.

Or maybe there really is some sort of mood-altering substance at work, cordite perhaps, the smell of gunpowder. The American public is clearly angry, determined, and just a bit dangerous. It is quite clear from the behavior of world leaders that this is no time to tempt the American mood, that the Bush administration has the political backing of an irresistible force. Run and hide? A skyrocketing equity risk premium, i.e., a much lower market, would be consistent with such a reaction. The market's rebound might be due to many factors, but one of them surely is the public's willingness, just a bit recklessly, to confront risk, and face it down.