The Dow Jones Industrial Average is holding its own, but for thousands of stocks, the bear market has already arrived.

At midweek, the average New York Stock Exchange stock was down 24.3 percent from its 52-week high. That's the biggest such decline since 1990, the last official bear market, according to equity strategists at Salomon Smith Barney. (A bear market is typically defined as a 20 percent or greater decline in the Dow Jones industrials.) More stocks have been making new lows than new highs most days since late May.On the NASDAQ Stock Market, the average stock has declined an even more dramatic 35 percent. Indeed, fully 30 percent of Big Board stocks and 51 percent of NASDAQ stocks are down 30 percent or more from their 52-week highs.

"The only thing making the market look good is the largest of the large-cap stocks," says Jeffrey Warantz, equity strategist at Salomon Smith Barney.

Scott M. Black, president of Delphi Management, adds, "We haven't seen this type of divergence since the top of the Nifty Fifty" in 1973 - a reference to the craze for big stocks in that year. "The large-cap stocks are masking what's going on." By some measures, he says, "We've been in a bear market for a long time."

The common explanation for the divergence is that fund managers need to stay fully invested, but, wary of how earnings problems can crater a stock, are disproportionately favoring the perceived security of blue-chip growth stocks.

Stephen Dalton, senior vice president at First Capital Group, a unit of First Union Corp., says every time an event upsets the market, investors dump stocks, and smaller, harder-to-trade stocks go down most. "If you're in one of one of those less-than-liquid stocks where a fundamental accident takes place, the stock goes down 50 percent." When confidence returns, managers return to the 50 biggest and easiest-to-trade stocks, leaving the secondary names to languish.

Even within the S&P 500, however, performance has gone disproportionately to the largest. Just 78 stocks provided all the year-to-date return of the S&P 500 through Tuesday, according to Salomon Smith Barney; the gainers in the remaining 420 just offset the losers. Indeed, only five stocks - Microsoft, Lucent Technologies, General Electric, Wal-Mart Stores and Pfizer - provided a quarter of the index's return.

Whether this divergence in the market is the harbinger of a more severe correction for the major indexes is fiercely debated. The rally to July's high "was extremely narrow and accompanied by a rising complacency," says Tom McManus, an independent strategist. "That should be looked at as a danger sign. It will take more than a week to unwind the complacency that existed just a week ago."

But Neil Eigen, a value-stock manager at J&W Seligman, says a more severe correction would require a pickup in inflation. "I'd like the market to move sideways for six months" so that earnings expand to justify stock prices, he says.