"This indicates a potentially serious fracture in psychology and a major shift in investor perception about the economic and monetary outlook."

He defines inflated stocks as those whose prices reflect discrepancies between investor perceptions and economic reality.

It seems clear the investor perception that nothing can go wrong in the new economy seems to be meeting with greater suspicion.

That apparent contradiction may be explainable by an investor perception that with good returns no longer available on short-term investments, more risk must be taken.

"If he says, 'Here's my team,' and everyone can see it is a strong team, I think it will have a very positive effect on investor perceptions."

But it is unlikely that the start of the war will lead to sharp changes in investor perceptions.

The biggest winners in the Dow and the S.& P. were turnaround stories, at least in investor perception.

And he says there is precious little that can be done to shake investor perceptions about the lawsuit-plagued tobacco business.

"In the chemical industry, the critical thing is not only investor perception, but consumer trust," Mr. Pisasale said.

The Fed's pattern of providing ample liquidity resulted in the investor perception of put protection on asset prices.