Investors are putting on a brave face, but 2002 could mark the first time the stock market as measured by major indices has been down for three straight years since 1941.

And with mixed signals on an economic recovery and a weakening dollar, some investors are also starting to think what was almost unimaginable in the boom years of the late 1990s's -- a stock market in decline for four years in a row, something not seen since the Great Depression.

"It's a strong possibility that we will have three down years on the major indices," said Eric Barden, portfolio manager with Austin, Texas-based First Austin Capital Management Inc., which oversees $60 million.

The danger for 2003, he said, "is that corporate spending continues to lag, while at the same time the consumer is tapped out and stops spending."

Economist generally agree that steady consumer spending -- which accounts for two-thirds of U.S. economic activity -- kept the recession last year short and shallow relative to previous downturns.

The Dow Jones industrial average is down 2.9 percent for the first half of 2002. That follows a 7 percent drop in 2001 and 6.2 decline in 2000.

Worse, the Standard & Poor's 500 index has lost 9.7 percent this year, after dropping 13 percent in 2001 and 10.1 percent in 2000.

BULL POSTPONED

What is troubling investors? The stock market typically moves ahead of a rebound in the economy as investors anticipate the upside. With stocks battling to rally and hold gains, money managers are uncertain when the next up leg will come.

"The case for a third down year is that the economy delivers uneven performance, corporate profits show no improvement materially, investors are still stunned by accounting shenanigans and there is a terrorist attack beyond the Israel/Palestinian confrontation," said Joseph Battipaglia, chief investment officer at Ryan, Beck & Co. LLC.

Investors may see a fourth down year in 2003 if those problems are compounded by concerns that U.S. government spending is out of control.

"We need budgetary constraints," said Battipaglia, a widely quoted bull in the 1990s. "If Congress spends, it puts into jeopardy the notion that public spending is in control."

Though Battipaglia sees the current market malaise as a buyer's strike rather than a selling panic, and perceives positive signs of an economic recovery and market rebound, he acknowledges a battle between the bulls and the bears is raging.

FOLLOW THE FLOW

The outcome "boils down to the flow of funds," said Louis Navellier, president of Navellier & Associates Inc. of Reno, Nevada, which oversees $2 billion.

"If foreigners flee, and the market sees a soft dollar, then funds flows will be erratic."

Domestic equity mutual funds have just seen a third consecutive week of net redemptions, losing $1.4 billion this week, according to Tom McManus, equity strategist with Banc of America.

With the dollar tumbling to a two-year low against the euro on Friday, non-U.S. investors may sell U.S. securities and take their cash elsewhere rather than risk losing any profits through currency depreciation, further pressuring stocks, money managers say.

WOES CONTINUE TO ADD UP

And market woes continue to add up, even as investors debate what to do. Companies ranging from drugmaker Genzyme General Corp. to film maker Metro-Goldwyn-Mayer Inc. to network equipment maker Riverstone Networks Inc. have warned in recent days that sales, revenues or earnings will be flat or fall short of expectations as demand remains sluggish.

Accounting scandals such as that sparked by the collapse of energy trader Enron Corp. have also prompted investors to lose faith in the stock market.

ImClone Systems Inc. on Wednesday said federal regulators are considering action against the drugmaker for failing to accurately disclose information in December about an experimental cancer drug.

The market "has been terrible and could end (the year) on a bad note," said Max Sasso, portfolio manager with City National Asset Management, a unit of City National Bank in Beverly Hills, California, that oversees $7.3 billion. "Will it happen for sure, I don't know, it's a tough call."

What the market needs is for investors to step up to the plate and buy. But with little good news, there is little likelihood of that any time soon.