A cascade of selling occurred in the final minutes of the session as investors yanked money out of the market. For many, the real fear is that the recession might be even more protracted if Capitol Hill is unable to bail out the.
Investors also scoured economic data that included minutes from the last meeting of the Federal Reserve in which policymakers lowered projections for economic activity this year and next. Economic worries caused across-the-board selling, with financial stocks particularly hard hit.
The S&P 500, widely considered the broadest snapshot of corporate America, slipped 6.12 percent to 806.58; and the Dow gave up 5.07 percent to 7,997.28. Both closed at their lowest levels since March 2003.
The financial crisis has already wiped out $6.69 trillion of value from the S&P 500 since its October 2007 high, and many fear more is to come. Stocks have traded with high volatility in the past few months, with the major indexes soaring only to plunge an hour later as the market looks for a bottom.
"I don't know what the catalyst is going to be where we turn the corner and people start buying stocks wholeheartedly again," said Jon Biele, head of capital markets at Cowen & Co. "People got out of the way. The financial situation hasn't changed."
The selling on the New York Stock Exchange was staggering - only 158 companies that trade there finished the day positive while 2,943 declined. Volume again was light, a symptom of the market's recent volatility, with 1.63 million shares exchanging hands by the close.
Smaller stocks also got clobbered. The Russell 2000 index gave up 35.13, or 7.85 percent, to 412.38.
Meanwhile, American consumers hit by a seemingly endless stream of bad news, from vanishing jobs to shrinking retirement accounts, got a small dose of relief: lower prices at stores.
The Consumer Price Index, the country's most closely watched inflation gauge, dropped 1 percent in October, the biggest monthly decline on records dating back to 1947, the government reported Wednesday.
The big drop reflected not only a huge fall in gasoline and other energy costs, but widespread declines in other areas. Core consumer prices, which exclude food and energy, fell by 0.1 percent last month, the first drop in core prices in more than a quarter-century.
What's getting cheaper? New cars as dealers sold nearly 130,000 fewer of them in October; clothing and airfare are also down, reports CBS News correspondent Ben Tracy. But energy prices are the loss leader - down 8.6 percent in October, mainly due to a 14 percent drop in the price of gas.
Just a couple of months ago the fear was inflation. Now, Tracy reports, some economists say today's numbers, which show a cut in the cost of living, could mean a jumpstart for the ailing economy.
"Their wages will be worth more, so it probably will aid the recovery," says economist Peter Morici.
But while lower prices may be exactly what cashed-out consumers need, prolonged price drops would cause serious deflation - potentially putting more stores out of business and more people out of work, reports Tracy.
"When prices start to go down, when you have deflation, consumers a lot of the time basically sit back and wait for more bargains, for more sales," Gross says.
The big retreat in consumer prices reflects a remarkable turnaround from just a few months ago when a relentless surge in energy prices raised concerns that inflation could get out of control.
Over the past 12 months, consumer prices have risen by 3.7 percent, substantially below the 17-year high of a 12-month price increase of 5.6 percent set this summer. Core prices are up 2.2 percent over the past 12 months.
This price moderation is giving the Federal Reserve the room it needs to. The central bank is expected to cut the federal funds rate, the interest that banks charge each other, down to 0.5 percent at its December meeting, even lower than the 1 percent where the funds rate stands currently. The 1 percent funds rate ties the record low for the past half century.
Even with the monthly price reprieve, consumers are in no mood to go on a shopping spree. They have been cutting back sharply on spending because of the strains from job losses, shrinking nest eggs and falling home prices.
The retrenchment jolted the national economy into reverse in the third quarter. Many predict economic activity will continue to shrink through the rest of this year and during the first three months of next year, more than satisfying one definition of a recession. That is, two straight quarters where the economy contracts.
Another report out Wednesday showed that the housing market, one of the economy's weakest spots, continues to be in a deep funk. Builders slashed home construction 4.5 percent last month driving it down to the lowest level on records going back to 1959.