NEW YORK, OCT. 9 -- The plunge in the stock market in the last two months, which accelerated today with a steep, 78-point drop in the Dow Jones industrial average, represents a vote of no confidence in the U.S. economy and could contribute to an economic slowdown as families trim their spending in response to investment losses, say economists and other market analysts.

The value of the 30 industrial stocks in the Dow average has dropped 18 percent, or more than 500 points, since its peak last July, as both domestic and foreign investors have rushed to shift their money into safer havens such as basic government securities and insured bank accounts.

"There's a perception that the economy is slowing down, and the risk of recession is high. The stock market, being forward looking, tries to take that into account," said Michael J. Moran, chief economist for Daiwa Securities America Inc., the U.S. branch of Japan's second-largest investment firm.

As the market falls, it serves not only to signal an economic downturn but also to accelerate one because both individuals and companies cut back spending, and pull money out of the economy as they see a drop in the value of their stocks, mutual funds and other investments.

Such a self-generated economic slowdown failed to materialize after the Black Monday crash in October 1987. But experts said the likelihood is greater this time around because many families feel doubly hit because the drop in the value of their stocks comes at a time when the real estate slump has sharply reduced the value of their homes as well.

"What's different now {from11987} is that housing prices have gone down," said Jordan E. Goodman, who writes a weekly small investor commentary for Money magazine. He said consumers may even feel hit by what he called a "triple whammy" of stock losses, the housing decline and proposed tax increases included in the new federal budget package.

In interviews last week in the gleaming Park Avenue office of Fidelity Investments, one of the nation's largest mutual fund companies, several investors who had come to check on the value of their portfolios said they were reining in spending because of the stock market's troubles.

An 80-year-old retiree from Hollywood, Calif., said he and his wife have scrapped a planned autumn vacation to London in favor of a less costly one to Maine or California, after seeing the value of their investments drop by $50,000 since the start of the year.

"I've been hit hard," said the man, who declined to give his name. "We were going to redo our apartment, but now we're going to hold off for a while."

Shuttie Zois, 52, an Albanian-born painter and sculptor, said the plunge in the market is "an affliction on the bohemian lifestyle of an artist."

Not only has he suffered "a lot of loss" in his mutual funds, Zois said, but sales are down sharply at the galleries that show his work.

"When the {stock} market gets tight, the first thing that gets hurt is the artworks of living artists, because they are a luxury," said Zois, a wiry man with a salt-and-pepper beard.

Many smaller investors hurt by the market's slide include those who put their money in mutual funds as a way to spread risk and have their investment choices made by a professional stock picker.

But that strategy didn't work in the third quarter of this year, when the average stock mutual fund lost 15 percent of its value in the worst setback for the industry since the 1987 crash.

As is always true in such cases, the losses are only on paper unless the investor decides to sell shares in the fund. As a result, the investors who have been hit the hardest are those who need the money immediately, such as for retirement or to pay college tuition bills, and have to sell rather than hold on in hope of future gains that would trim the loss.

"People under time pressure are going to be hit the hardest," said Sheldon Jacobs, editor of the No-Load Fund Investor, a monthly newsletter on mutual funds based in Hastings-on-Hudson, N.Y. "You simply have to look at equities as a four- or five-year investment."

Some people who do not actively "play" the stock market still have suffered paper losses from the market's decline through their company-run savings or pension plans. If their plans are of the "defined contribution type," in which the investment risk is borne by the employee, they may have lost money, on paper, in the plans. Such plans include the 401(k) types, profit-sharing plans and employee stock ownership plans.

Unaffected are plans of the "defined benefit type," in which the employer, backed by a federal insurance policy, bears the investment risk.

Even before the Persian Gulf crisis erupted with Iraq's invasion of Kuwait on Aug. 2, investors had been concerned about slow growth in the economy, sagging corporate profits and unusually high levels of debt. Since then, they have pulled billions of dollars out of the stock market on the assumption that the resulting run-up in oil prices is sure to put the last nail in the coffin of the second-longest economic expansion since World War II.

"The trigger for the decline was clearly the Middle East, which released a torrent of uncertainty," said Mitchell R. Meisler, executive vice president at the New York investment banking firm Lehman Brothers.

"The problem with the {stock} market right now is that a lot of people believe we're in a period of stagflation -- a slow economy, but rising inflation. That is really lethal for the stock market," said Michael Metz, chief market analyst at the New York investment firm of Oppenheimer & Co.

While U.S. investors have been doing most of the selling, the stock market also has suffered indirectly from a loss of support from abroad. Both Japanese and West European investors have withdrawn money from the U.S. economy, or refrained from investing here, in an important signal of skepticism over American economic prospects.

In a major reversal, Japanese investors worried about losses in the Tokyo stock market have begun reducing their investments in U.S. government securities. That has helped push up U.S. interest rates, and that tends to hurt the stock market by making it more attractive to invest in bonds rather than in stocks.

For some strong-nerved investors, the recent decline in the market is an opportunity rather than a headache. Tom Wang, 50, a bank loan administrator from Queens, said the value of his investments has dropped 15 percent in the last two months, but he was busy buying bank stocks at what he considered bargain prices.

The market "will be back," Wang said. "It's a good time to make some money."