NEW YORK -- On a Thursday afternoon early in December, E.F. Hutton investment banker John Derosier was walking back from lunch when he stopped suddenly at the corner of Sixth Avenue and 52nd Street. Before him stood a marked man. "See that guy right there?" Derosier asked, pointing at a well-dressed investment banker across the way.

Derosier's face turned grim.

"He just had his second kid. He is out of work and in big trouble. It's going to be brutal."

Hard times have arrived on Wall Street -- to the consternation of young and prosperous professionals like Derosier, and to the apparent delight of Wall Street's critics. With no regrets, the Street last week said goodbye to a year that produced Black Monday's market plunge, the sentencing of master speculator Ivan Boesky and lesser figures in the insider trading scandal, a dramatic slowdown in the lucrative merger and takeover business, and mass layoffs.

As the New Year begins, there is a clear sense in the honeycombed office towers of Manhattan's financial district that an important and distinctive era in American finance is coming to a close.

"It is the end of a world," said Robert Pirie, president of the Rothschild Inc. investment banking firm. "The world of the last five years as we know it is gone."

In interviews here with dozens of Wall Street executives, traders, brokers and others, a consistent theme emerged: The Wall Street of the 1980s, that world of unbridled stock market confidence, booming merger deals, speculative borrowing and aggressive trading strategies is being replaced by a new time of retrenchment, uncertainty and fear.

"It's like being on the side of the mountain when the avalanche comes down," said Goldman, Sachs & Co. senior partner John L. Weinberg, referring to the stock market collapse. "The best thing is to get out of the way."

Despite the record 508-point drop in the Dow Jones industrial average on Oct. 19, the Dow today stands at 1938.83, 42.88 points higher than at the start of 1987. Some regard the Dow's partial recovery since the collapse as a sign that no severe economic crisis will follow Black Monday. In nervous New York, where the sting was immediately felt, the mood is more pessimistic than in the rest of the nation.

Wall Street executives such as Rothschild's Pirie believe that the stock market is predicting an economic downturn that may not show up for months, although many have not recognized the threat. Pirie said the suddenness of the market's drop on Black Monday and its rapid turnaround have created an illusion that the damage was fleeting.

"It happened in a way that people have not accepted it," Pirie said.

The most dramatic changes so far can be seen in the vast trading rooms of the Street's largest investment houses. At some firms, whole trading areas, such as municipal bonds, have been shut down, leaving eerie clusters of empty desks in the midst of busy trading floors.

More than 10,000 Wall Streeters have been thrown out of work so far by investment banking firms and commercial banks. Among them were thousands of Hutton employes who became casualties when the firm announced early in December that it would end 83 years of independence by selling out to Shearson Lehman Bros. Numerous Hutton investment bankers, such as the one pointed at by Derosier, may be forced to seek employment in other industries.

Even in firms where trading is still active, new attitudes prevail.

"The cowboy aspect of it is dying off," said Alfred Roth, who directs fixed-income trading at Thomson McKinnon Securities Inc. "It's real money now. ... The days of just sitting there and chucking it around -- you know, 'Let's buy $200 million and see if it goes up' -- those days are gone."

The gloom is not universal. The most profitable Wall Street firms are likely to enjoy the luxury of a carefully managed slowdown. At Drexel Burnham Lambert Inc., for example, the firm has been preparing for 1988 by slowing growth dramatically, reducing employment modestly and cutting other costs in a "symbolic" fashion, according to chief executive Fred Joseph.

Drexel's Beverly Hills office, which is the subject of a major government investigation growing out of Boesky's cooperation, has merely snipped at costs by reducing the number of parking places it uses and by holding one large party rather than two small holiday gatherings at the Beverly Wilshire Hotel.

However, in the nation's popular culture, evidence of the new realities for most of Wall Street is abundant. Madison Avenue firms are rapidly retreating from ad campaigns that emphasize upscale consumption. Yuppie-bashing jokes are all the rage. And Newsweek magazine has declared, in a cover drawn by cartoon satirist Garry Trudeau, that greed is headed "out of style."

Traditionally, the New Year has been a happy time on Wall Street, marked by the delivery of fat holiday bonuses. These days, the signs of comfort and joy on the Street are few.

There are places on Wall Street now where old memories and new realities clash dramatically, producing strange effects.

Consider, for example, the portrait that hangs in the sprawling and boisterous trading room of the Jefferies & Co. brokerage firm on Fifth Avenue in Manhattan.

The painting is of the firm's founder and shows a tan, smiling man whose strong blue eyes convey intensity and ambition. Every so often, the portrait is moved from one wall in the trading room to another so its presence can inspire a new group of traders and brokers.

"It reminds us what we have to do," said Tom Phillips, 50, a Jefferies broker, speaking of the portrait. "It is a statement, a strong statement, about how we feel not only about the man but what he stands for."

The man in the portrait is Boyd L. Jefferies, who is facing a maximum 10-year jail term after pleading guilty to crimes arising from illegal stock trading arrangements Jefferies made with Ivan Boesky. The illegal deals between Boesky and Jefferies took place in 1985, during a period of frenzied, speculative trading in takeover stocks.

According to Phillips, the portrait was commissioned by the firm last year, after the Securities and Exchange Commission barred Jefferies from the securities business for five years.

"His spirit is still with us," said Jefferies President Frank Baxter. "His values of 'anything can be done' and commitment to the client are an important part of our culture and always will be."

Jefferies & Co. grew rapidly during the bull market by concentrating on the trading needs of large institutional clients who often dealt quickly in and out of huge blocks of stock. Baxter said the firm may benefit somewhat from the uncertainty triggered by Black Monday because its style of trading does not require it to risk large amounts of capital, as other brokerage firms must.

While other investment firms fire employes, Jefferies, which compensates its brokers on a commission-only basis, is looking to hire the best people it can find, Baxter said. But Jefferies did suffer a $5 million to $10 million loss during the October market collapse, and things have not been the same since.

"If being busy is having fun, {then} it has been pretty miserable," said Phillips of the environment since October. "It is slow. If you were ever an athlete and competed, you know what a high is like when you win. We were on a real winning streak for five years. And then to go into a tailspin and have what you feel is a real tough losing streak -- even though it hasn't been that long, it feels like it has been an eternity."

One irony of the stock market collapse is that it has inflicted upon Wall Street the pain of layoffs and business restructuring that Wall Street imposed on corporate America during the boom years of merger and takeover activity.

When merger mania reigned between 1982 and 1987, many large corporations cut employment and made other painful changes. At the same time, the securities industry grew wildly, from 288,000 employes in 1982 to 451,000 as of Aug. 31, 1987, according to the Securities Industry Association.

The leading Wall Street firms grew even faster. "In less than five years, we have grown 2 1/2 times in size" to about 7,500 employes, said Goldman's Weinberg. Now, the tide is going out and the cuts have touched nearly every major investment house. At some firms, the effect of cutbacks has undermined decades of proud and solemn tradition.

Kidder, Peabody & Co., for example, is a firm with 19th century roots and a reputation for paternalistic concern for its employes and clients. For decades, Kidder was known for avoiding the cyclical dismissals that were common at other firms.

Those days are over. Bruised by the double blow of the Wall Street corruption investigation and the market collapse, Kidder has a new owner -- General Electric -- and a new cost-conscious culture. Last month, the firm announced plans to cut $100 million in annual operating expenses, including eliminating 1,000 employes, closing 10 percent of its brokerage offices and reducing other expenses.

"We've gone through one of the great bull markets in the history of Wall Street," said Kidder President Max C. Chapman Jr. "Based on that, there is every indication that Oct. 19 marked a change. ... I don't think the world is coming to an end, {but} it is foolish and irresponsible not to prepare for it."

For those who remain at Kidder, compensation will be reduced. Kidder slashed its 1987 bonus pool 20 percent from 1986 levels. Chapman said that until this year, Kidder had never reduced bonus payments in its modern history.

And Kidder's troubles may not yet be ended. The firm must wrestle not only with its frugal new owner, but also with the continuing corruption probes.

Richard B. Wigton, a longtime Kidder trader, was arrested last February and charged with participating in an illegal insider stock trading scheme that involved former Kidder merger specialist Martin A. Siegel, who has pleaded guilty to criminal charges and is cooperating with the government. An indictment against Wigton and two others was withdrawn last May, but the Manhattan U.S. attorney has said an investigation is continuing.

The problems shared by Kidder and other Wall Street firms have left some corporate clients -- who before the market collapse tended to regard Wall Street's legions of young investment bankers as arrogant and dangerous -- with a slight smile on their faces.

"I gave a talk to a group of business executives of midsize companies recently. There is a feeling that Wall Street is getting its comeuppance, that we're black sheep," Chapman said. "There is not a lot of sympathy. ... You see a few smirks."

It was not just Wall Street's institutions that boomed between 1982 and 1987. It was a generation of people that prospered as well -- a class of young investment bankers, traders, and brokers who found unprecedented wealth and influence in the great bull market swirl.

Even after the October collapse, some of them were still partying. At a Bethesda bash hosted by Shearson Lehman Bros. broker Thomas F. Duffy one recent Saturday night, there were few signs of gloom and despair.

"Celebrate good times, come on!" blasted the Kool & the Gang song spun by disc jockey Hurricane Harry as a gaggle of stockbrokers danced happily at 11:30 p.m.

A stream of bubbles wafted over the make-shift dance floor as Duffy, a 38-year-old bachelor with a Porsche in his garage and a hot tub in his back yard, twirled an E.F. Hutton sales assistant to the music. Only days before, the Shearson-Hutton merger had been announced and job cutbacks were on the horizon.

Yet one Hutton broker, spotting a former colleague at the party who was now working for Shearson, declared openly, "It feels like old times."

For the generation of young brokers at Duffy's party, many of whom had never known a down market, the events of Oct. 19 seemed not to matter much. "They don't understand how bad it can get," Duffy later said in an interview.

Unlike some of his peers, whose experience in the brokerage businss has been limited to the bull era, Duffy doesn't trust the stock market. Instead, he pushes conservative bond investments.

"I don't think individuals should own common stock," Duffy said, emphasizing that this was his view and not Shearson's. "The vagaries of the stock market have never been clearer. The stock market is totally irrational. ... The emotion of stocks is self-defeating. Greed and fear preclude you from doing the right thing at the right time."

A popular assessment of today's stock market is that fear has replaced greed as the market's driving emotion. Evidence of that shift is available not only in strategies of investors, but also in the lives of market professionals.

One senior Wall Street official described a breakfast he had recently with a young investment banker who was considering a switch in employment. The young banker became teary as he described the predicament of his friends in the securities business, many of whom are overextended in their personal finances.

Savings and loans in the New York area made mortgage loans to young investment bankers based on projections that 1987 bonuses at the big Wall Street firms would be larger than in 1986, according to several Wall Street officials. Since bonuses are being cut and jobs are being lost, some of these young investment bankers will not be able to meet their mortgage payments. Many expect a fall in luxury home and apartment values in New York as sellers are forced into the market next year.

Some segments of Wall Street, such as the municipal bond business, have felt the pains of downturn for longer than just a few months. Fevered competition, tax reform and other factors squeezed the municipal business so badly in 1986 and early in 1987 that some firms, such as Salomon Inc., eventually abandonded the area entirely.

"We were all ego fed. Those of us who were making a million bucks a year thought this would never end," said Gerald Roberts, who was a municipal bond salesman at Smith, Barney & Co. before leaving to join Vigilant Advisors Inc. when the municipal market turned sour. "There are people out on the street {unemployed} who still think it hasn't ended."

The strains of the market's boom and bust also have disrupted intimate relationships. Dillon, Read & Co. municipal finance managing director C. Austin Fitts said three employes in the firm's 24-employe municipal unit have suffered divorces in 1987. One of the divorces was her own.

"The bull market has stresses," Fitts said.

"Everybody I know, with few exceptions, is rethinking how they have been living their lives the past few years," Hutton's Derosier said.

The exceptions, however few, are striking. Asher Edelman, the corporate takeover artist who once offered $100,000 to his students at Columbia University if they presented him with an acceptable takeover target, appeared stunned during a recent question and answer session with business school graduates when a young Wall Street stockbroker said:

"I came into some hot information about an American Stock Exchange company being taken over. I got it from good sources. I called a dozen clients {to see if they wanted to buy stock} and only one responded. I was really disappointed. This is the worst market we've ever seen."

"The question," Edelman summarized, "is will inside information once again be accepted by the customer?"

The audience laughed nervously. Before Black Monday, Wall Street basked in a sunny confidence, enjoying a game that seemed to produce only winners. Now, it faces a struggle that will reward the fittest. "Every time somebody else shuts down it is an opportunity for us," Dillon Read's Fitts said. "To a certain extent all we do each week is dance on somebody else's grave."

And in this harsher environment, Wall Street firms face the challenge of restoring morale and loyalty. Fitts noted that during the bull market, leading Wall Street firms encouraged employes to spurn attractive offers from rivals, promising that when times were tough they would stick with loyal employes. Instead, Fitts said, many employes have been devastated when they and their departments were terminated without advance warning.

If there is a silver lining to these clouds, it is that plunging stock prices can represent opportunities. While the market's decline has erased more than one-half trillion dollars in assets, blasted investor confidence and destroyed plans for new stock and bond offerings, it may also be creating bargains.

The perception of bargains may revive at least some of the dealmaking that was instrumental in fueling Wall Street's biggest years. Pirie said he is optimistic about 1988 in part because his firm represents several foreign takeover specialists, who see opportunity in the U.S. because of the falling dollar and depressed stock prices.

At Morgan Stanley & Co., managing director Thomas Saunders said that after Black Monday, he raised $1.1 billion from investors worldwide to invest in leveraged buyouts. In a leveraged buyout, a company is acquired with mostly borrowed money; the borrowings are repaid through a combination of asset sales and revenue from continuing operations. Lower stock prices make these deals more attractive, Saunders said.

While dealmaking frenzy isn't expected to return to anything like its old intensity, investment specialists hope that merger activity in 1988 will exceed the slow pace of recent months.

"I'd like to see the new year start on a different footing all the way around," said Guy Wysser-Pratte, head of arbitrage at Prudential Bache Securities. "The traumas of the last year and a half have worn out a lot of gifted people."

Wall Street enters 1988 exhausted and confused. A Street that once believed its own optimistic projections of an endlessly rising Dow now finds itself befuddled about the future. "The biggest single issue here is uncertainty," Hutton's Derosier said. "That will be reduced only by time."

"The economists aren't comfortable with their forecasts right now," said Roy Blomberg, chief investment strategist at Thomson McKinnon. "Decision-making is on hold."

In a relatively upbeat assessment of 1988, Drexel Vice Chairman Jim Balog recently implored a gathering of Washington stock market experts to remember that "fear is temporary and hope springs eternal."

But Balog also articulated the post-Black Monday fear that permeates every major brokerage firm as 1988 begins.

"We can very easily get a stampede in the marketplace again," he warned.