After a year of devastating losses, the stock market has the makings of a recovery in 2009: Nearly $9 trillion in cash on the sidelines, waiting to be invested.

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NEW YORK — After a year of devastating losses, the stock market has the makings of a recovery in 2009: Nearly $9 trillion in cash on the sidelines, waiting to be invested.

But before investors can feel comfortable diving back in, they’ll need to overcome the chilling effects of a recession and their distrust of how Wall Street operates.

“So many people have been so badly damaged,” said Alfred E. Goldman, chief market strategist at Wachovia Securities, who has spent 48 years monitoring the market.

Goldman said he’s never seen despair worse than it was in late November. Indeed, that’s a sign the market has hit bottom.

And as mood improves, he said, some of December’s record $8.9 trillion in money supply, as measured by the St. Louis Federal Reserve, could be funneled back into stocks, bonds and other investments.

Consumer fear

Fear on the part of investors and consumers alike could make the process slow and choppy next year.

Gavin Rampersaud bought land in Florida in 2005 as an investment property, and it has fallen in value from about $80,000 to $20,000. And he still has a mortgage in New York to pay.

“We’ve already cut back a lot. We don’t go out as much,” he said. “Investing? We’re tight as it is.

Decades from now, economic professors may point to 2008 as the year capitalism went on life support.

Home prices sank further than any lender could have imagined. Banks including Lehman Brothers and Washington Mutual failed, and many others received government funding or were bought up in shotgun deals.

As investors recoiled and cashed out even their safe assets to build up reserves, the Dow Jones industrial average tumbled as much as 47 percent from its October 2007 record.

The market’s drop between October 2007 and November 2008 wiped out more than $10 trillion in wealth.

In 2008, governments around the world have shoved trillions of dollars into the financial system, primarily by offering and guaranteeing various types of loans and investing in troubled companies.

Signs are emerging that these rescue plans are beginning to stick.

But getting U.S. stocks moving higher again is going to be a long haul.

The credit crunch is forcing large investors from the superrich to hedge funds to pension funds to governments to take on less risk.

Badly burned

And after the news came out that investment adviser Bernard Madoff allegedly bilked clients out of $50 billion through a fraudulent fund, investors have even more reason to adhere to safer, tried-and-true strategies.

“Bernie Madoff has created a real issue for high-net-worth individuals, and it reaches around the world,” said Robert Howell, a finance professor at Dartmouth College.

“We’re not going to have people handing over millions and millions of dollars to hedge-fund managers with no accountability.”

And because there will be less money invested, it’s likely there will be less market activity.

“I think the markets will have changed significantly,” Howell said. “When you have reduced activity, you don’t have as much pressure upward. It’s frenzied buying that pushes the market upward.”

Already, the assets of the large, unregulated hedge-fund industry dropped this year by about a fifth to $1.55 trillion in November, according to Singapore-based hedge fund research firm Eurekahedge.

The deleveraging, or cashing out, process appears more than halfway done, said Eric Brandhorst, senior managing director at State Street Global Advisors. However, as the Madoff scandal shows, more losses are always possible — particularly when one considers the complexity and lack of regulation in large swaths of the financial industry.

Another factor that could limit a stock-market rebound is a weak consumer. Personal consumption dropped 3.8 percent during the third quarter, according to the Commerce Department.

It would take a pretty horrific economic downturn to instill the same frugal mindset of those who grew up during the Great Depression. But it’s a pretty safe bet consumer behavior will change.

Double-digit joblessness

Cutbacks will be more drastic for the millions of Americans who have lost their jobs. U.S. unemployment is at 6.7 percent, the highest in 15 years, and some economists forecast it will rise into the double-digits next year.

Another reason companies should probably expect slower consumption growth is that there’s less credit available.

The nation’s largest banks — from the weaker Citigroup to the stronger JPMorgan Chase, Bank of America and Wells Fargo — have learned a harsh lesson from their missteps in mortgage lending and become more conservative.

If Americans do end up spending significantly less in the coming years, corporate profits may not return to their pre-2008 strength. That means many of those seemingly cheap stocks out there might actually be correctly valued.

Of course, the future always looks bleak when conditions are bad. The positives include the fact that stock volatility in December has been much lower than in November.

The government’s bailout efforts might weaken the U.S. dollar, but other major currencies probably won’t be very strong, either. And in the history of capitalism, risk-taking has always bounced back.

Darwinian view

Many market watchers are taking a Darwinian view, saying that when the crisis is all said and done, only the strongest companies will have survived, and the world will be better for it.

“Capitalism has to burn down once a lifetime,” RBC’s Marta said. “That’s how it lives.”

Main Street just might be a bit more shrewd when it comes to Wall Street in 2009.

“There has to be some distrust. But we’re a lot smarter than we were 12 months ago,” said Sam Boosak, who works at Benedetti Custom Shoes in Manhattan.

“I’m not going to just stash my money under a mattress.”