The stock market in 2009 has put investors through just about every kind of emotion possible: frustration, fear, elation, hope, depression and relief come to mind. I’m sure there are more, but you get the picture. When the market starts the year by diving 30% in a little over two months, as it did through March 9, and then turns around and gains north of 60% the next eight months, there aren’t many emotional stones left unturned.

Now, as the Dow has stalled out in recent weeks north of the psychologically-important-but-fundamentally-irrelevant 10,000 threshold, it seems the dominant emotion amongst investors today is trepidation. A general malaise that the market has come too far, too fast, and we are therefore destined for another steep downturn. The media is teeming with so-called experts who subscribe to this worldview and help keep this feeling of trepidation front-and-center in the investor psyche.

I think all of this handwringing requires deeper analysis, because there are two points to consider that are being glossed over in the discussion:

First is the obvious: Of course the stock market will go back down, because, in the short-term, the market’s behavior resembles more a yo-yo than a straight path upward. The trend line of the market over the past year – a huge dive down and then a huge climb back up – is historically atypical. The more normal behavior for the market is a lot of short-term bouncing around within the longer-term march upward. Given that we have seen gains of between 60% and 80% in most major asset classes the past eight months, no one should be surprised if the market experiences a downturn in the months ahead.

That doesn’t mean, however, that the market is doomed to repeat its swoon from last year. Bear markets (defined as a 20% market decline) are a fact of life in the stock market, but the market panic that began after the collapse of Lehman Brothers in September 2008 is not. Such events are the equivalent of a 100-year flood in the capital markets. They are extreme events of rare frequency.

The second point that bears further analysis is the assumption that the gains we have seen are somehow “invalid,” the short-term result of another bubble that is doomed to burst. But the current psychology of the market is one of doubt and disdain, and bubbles aren’t born on skepticism. Remember back in 1999 when all you had to do to get rich quick was get in on a dot-com IPO? When making a triple-digit gain in a single day was not unusual? When the experts said we were in a “new era” when earnings didn’t matter anymore? That is what a bubble environment is like. Bubbles are born, not just on optimism, but on pie-eyed euphoria and a complete detachment from risk. And that is a long way away from the skepticism and doubt many investors have today about the sustainability of the current bull market.

As we said in our client letter last month, perhaps history will show that the overreaction in all of this was not the recovery of the past eight months, but the end-of-the-world panic that preceded it. If that proves to be the case, then a return to the stock market levels prior to the collapse of Lehman is not only plausible, but actually just makes sense.