Wall Street capped its worst week in seven years with a late day selloff as traders briefly celebrated the House's approval of the Wall Street bailout, then yanked their positions ahead of the weekend.
"Definitely a sell-the-rally mentality," Dave Rovelli, managing director of US equity trading at Boston-based Canaccord Adams, said.
The S&P 500 fell 1.4 percent, while the Nasdaq declined 1.5 percent.
Anxiety resurfaced in the market, with the CBOE Volatility Indextopping45. The VIX hit a new 52-week high of 48.40 on Monday.
The S&P 500 and the Nasdaq had their worst week since September 2001, and the Dow had its worst week since July 2002.
The Nasdaq was hardest hit this week as investors worried that the economic slump will take a toll on tech spending. IBM had the most negative impact on the Dow, falling 13 percent this week, and Apple was the week's biggest drag on the Nasdaq 100, tumbling over 24 percent.
For the year, all three major indexes are down more than 20 percent and the VIX, the best gauge of fear in the market, is up more than 100 percent.
The House approved the bailout bill early Friday afternoon and President Bush expeditiously signed it, capping a wild week that saw the Dow plunge a record 777 points on Monday, clawed back about 485 points on Tuesday, then fall for three straight sessions to end the week down nearly 815 points.
The plan, already approved by the Senate, will allow the government to buy bad mortgage-related securities and other troubled assets at a discounted price.
The bill's approval was cheered on the trading floor but it doesn't signal the all clear for the market. That was apparent in the last half hour of trading as the hoopla quickly dissolved into a frenzy of selling activity.
The late sell-off was the market "voting that the plan that [Congress] came out with today may not work," Rick Schottenfeld, chairman of Schottenfeld Group, told CNBC. "It goes a long way to help ... but I don't think it's going to do anything for the asset values," he said. "I think there are problems that are still ahead of us."
There was also the worry that it won't help unlock the credit market.
"Right now, short term ... we're going to be focusing on that Libor to see if we can break that stranglehold on the credit markets—that's critical," said Marc Pado, U.S. market strategist at Cantor Fitzgerald in San Francisco.
And, of course, there's the economy, which will get more of the market's attention once the financial system gets moving again.
Today brought a few more dismal numbers: U.S. employers cut nonfarm payrolls by 159,000, the steepest rate in 5 1/2 years, while the unemployment rate was unchanged at 6.1 percent. A separate report showed the service sector barely grew in September.
Wachovia shares rocketed 74 percent following news that it will be bought by Wells Fargo in an all-stock transaction worth $15.1 billion. Shares of Wells Fargo slipped 1.7 percent.
The deal essentially pulled the rug out from underneath Citigroup, which had been in an FDIC-orchestrated deal to buy Wachovia. Citigroup said it may file a lawsuit to stop the deal.
Citigroup was the biggest drag on the Dow, falling more than 18 percent.
Financial stocks, which had rallied on expectations the bill would pass, sold off in the last half hour as traders began to worry about the end of the short-selling ban, which is set to expire three days from the passage of the bill, which would be Thursday.
The S&P 500 financial sector index ended down more than 3 percent.
AIG shares fell 4 percent. The insurance giant said it will sell off a number of business units in an effort to become a smaller, more nimble company in the wake of an $85 billion bailout from the federal government.
Other insurers advanced, including Hartford Financial and MetLife, after getting beaten up this week amid speculation that another sector domino would be falling in the wake of AIG.
Regional banks continued to rally after getting hammered earlier in the week. National City and Sovereign Bancorp finished up more than 11 percent.
Apple shares ended down 3 percent, off its earlier low, after a spokesman declared untrue a rumor that CEO Steve Jobs had suffered a heart attack. The stock had plunged to a new low of $94.65 at the opening bell as the rumor made the rounds.
Blue-chip techs finished mixed as a recovery from Thursday's bludgeoning fizzled.
Research In Motion and Google skidded, while Microsoft and Intel ticked higher.
CNBC parent General Electric saw its shares drop another 2.6 percent, adding to the prior session's 10-percent decline. Earlier this week, the company announced plans to raise $12 billion through a common stock offering and that it is selling $3 billion of preferred shares to Warren Buffett's Berkshire Hathaway.
Crude oil lost 12 percent this week, settling at 93.88 a barrel, after ending last week just shy of $107. The dollar rose against the euro.
So, what happens to the market now?
Financials will likely remain under pressure as the short-selling ban is set to be lifted on Thursday. And, investors will be closely watching the credit market for any sign that banks are starting to lend again.
"I think the real thing settling in now is that it's going to be a month before this thing [the bailout plan] gets off the ground and they're still unsure of how they would do it," said Jim Paulsen, a strategist for Wells Capital Management in Minneapolis.
"And that's a long time when the house is on fire!" he said.
"We've got to get the short-term markets unfrozen right now," Paulsen said. "We've gotta do something besides let it burn for a month."
Paulsen said maybe the Fed can set up something in the interim, or money-market funds can stretch their durations to get the money flowing again. Or, maybe private investors will jump in to try to get in front of the government bids for companies' devalued assets.
There was a false sense that "If we get this thing passed, the knowledge that it's coming will be enough" to calm the market, Paulsen said. "I'm not sure that's good enough."
We'll get a read on the housing sector next week, with pending-home sales on Wednesday. Plus, a read on consumers, with retailers reporting chain-store sales for September on Thursday.
And, get ready ... we'll see just how tough it is out there as earnings season kicks off with Alcoa on Tuesday.
On Tap for Next Week:
TUESDAY: Bernanke, Stern speak; Fed minutes; consumer credit; Earnings season kicks off with Alcoa, Yum Brands
WEDNESDAY: Weekly mortgage applications; Fed's Plosser speaks; Pending-home sales; Weekly crude inventories; Earnings from Costco, Monsanto and Ruby Tuesday
THURSDAY: Retailers report Sept. sales; Bank of England announcement; Weekly jobless claims; Wholesale trade; Natural-gas inventories; Fed's Stern speaks; Earnings from Chevron
FRIDAY: Import/export prices; International trade; Treasury budget; Earnings from GE