The 500 point loss on the DOW this month coincides with the tightening of the Presidential race beginning with the first debate, as well as Spitzer's actions and the Fannie Mae upheaval. When the political perceptions are combined with basic economic data, the profit outlook becomes decidedly "murky" for the next quarter or two.
I believe you accurately touched on one specific fear that Wall Street has, that seems to become more probable with every passing day, and would explain a large part of the past few weeks losses on the DOW.
It is the very real possibility that the election will be finalized in many court battles in many states, in a most disruptive and destabilizing manner.
Based on the headlines of the past week concerning voter registration irregularities and electronic voting challenges, it seems very possible that a winning margin of dozens of thousands of votes in a key state will still have to be adjudicated.
If Bush continues to trend upward during the next week, to a lead beyond the margin of error in battleground state polls, then the fear will subside and some significant buying will likely take place on 1Nov and election day. But if the race remains too close to call, there is little penalty for investors to wait until later in the week after the dust has settled.
Of course, in this day and age, both a terrorist attack and a last weekend surprise 'political' attack are major concerns.