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Tickers in this Article: WB, C, NCC, CCOW, PWER, MDTL, GOOG, YHOO
Four words. That's all it took to trim the Dow Jones Industrial Average by a record 777.68 points on Monday - four little words, delivered by Speaker of the House Nancy Pelosi at approximately 3:00 p.m. EDT: "The legislation has failed."

It's a good thing Pelosi was brief. At around 194 points per word, imagine the shambles the Dow would be in today if, say, Joan Rivers had been the bearer of bad news instead. Can an index be negative?

Of course, the legislation Pelosi was referring to is the $700 billion bailout package for the nation's flailing financial system proposed by Treasury Secretary Henry Paulson on Sept. 21 - legislation that appeared to have support in the Senate but was voted down 228-205 in the House of Representatives. (For more commentary on the proposed legislation, read my previous article Santa Paulson Is Coming To Town.)

Let's Get Ready to Rumble
Needless to say, the financial sector greeted the House verdict with all the enthusiasm of a family pet at a preschool show-and-tell. Among the wounded were Wachovia (NYSE:WB), already reeling from the disclosure that the company was selling its banking operations to Citigroup (NYSE:C) in a deal facilitated by the FDIC, National City (NYSE:NCC) and Capital Corporation of the West (Nasdaq:CCOW).

But the real story on Monday was not the financial companies - that bloodbath was about as predictable as a negative paternity test on the Maury Povich Show. No, the real story is what happened to the market as a whole.

The advance-decline ratios were downright scary, as just 6% of the stocks listed on the New York Stock Exchange were up from the previous day, while 94% were down. Nasdaq scored the fight 84% to 14% in favor of the red corner and the Amex had it 83% to 14%, also in favor of declining issues. (To learn more on advance-decline ratios, read the Advancers to Decliners section of our Market Strength Tutorial.)

Equal Opportunity Destroyer
The damage was everywhere. Shares in Power-One Inc. (Nasdaq:PWER), a company that designs and manufactures various power conversion and power management products, dropped 34.9%; Medis Technologies (Nasdaq:MDTL), a designer and developer of liquid fuel cell products for mobile handsets, fell 42.3%; and Google (Nasdaq:GOOG) closed below $400 for the first time since Sept. 20, 2006.

Google? Yeah, I know Google has its problems - the proposed ad partnership with Yahoo (Nasdaq:YHOO) quickly comes to mind - but does anyone seriously believe that Google's 11.61% decline on Monday was the result of anything other than a bad case of investor jitters over the House vote?

Jeffrey Lindsay, an analyst who follows internet stocks for Sanford C. Bernstein and Co., summed it up neatly when he told Reuters that "nothing has changed fundamentally in many of these stocks, but everyone is trotting out their bear market scenarios."

So true, yet pessimism in one market sector often seems to inspire more of the same somewhere else, especially in an election year when opportunistic politicians feed on negativity like vultures at a roadside kill.

Don't Worry, Be Happy
Still, there is reason for optimism. Since the stock market crash of 1929, there have been 13 single-day Dow Jones declines greater than the one witnessed Sept. 29 (on a percentage basis).

Data provided by Yahoo Historical Quotes


In five of these crashes, the Dow recovered in four days or less; in 10 cases it bounced back in under two months.

For more perspective, check out our tutorial on The Greatest Market Crashes.

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