Slammed by the most serious economic downturn in more than a generation, some of the world’s most widely known franchises are now trading for just pennies, forcing millions of investors to rethink the entire notion of a blue-chip stock.

“The clear implications are that things are much worse than anyone would have predicted a year ago," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research, who called the penny-stock trend a "once-in-a-lifetime phenomenon." 

The market meltdown that has erased more than 50% of the value of the Dow Jones Industrial Average hit another milestone this week as Citigroup (C) joined a string of blue-chip stocks by briefly tumbling below $1 per share for the first time ever.

“Not only can’t I believe it, but it’s been extremely painful,” said veteran New York Stock Exchange trader Ted Weisberg, who has owned shares of Citigroup since 1991. “I’ve been here for 40 years and I’ve never seen anything quite like this before. It’s almost beyond belief, except it’s quite real.”

Falling below $1 per share share “indicates to the rest of the world that everyone feels the very existence of Citigroup is being questioned,” Matt McCormick, vice president at Bahl & Gaynor Investment Council, told FOX Business.

While the fall to penny-stock territory for Citigroup, American International Group (AIG) and General Motors (GM) has clearly been painful for those companies’ shareholders, it also has had a wide-ranging impact on the traditional notions of investing, market psychology and even the very rules governing which stocks are listed on the New York Stock Exchange.

“It destroys the notion of a blue-chip stock. Those were supposed to be the stalwarts of American business," said Sparks.  "It puts into question the old theory that if you have blue-chip stocks, you can not worry about them. That’s the new realization of this bear market.”

The penny stock phenomenon also calls into question whether or not Americans will remain gun shy from even the greatest companies long after stocks begin to recover.

“Clearly the buy-and-hold strategy becomes dramatically risky in an environment [like the one] we are in now,” said Weisberg. “Most investors want to assume that the glass is half full, but clearly there are periods of time this is not the case. This is not to say the glass won’t be half full some time in the future.”

At the same time, the penny-stock trend of recent months has forced the NYSE to relax rules that previously would have caused stocks that broke $1 per share to be de-listed from the Big Board.

Dow Jones Indexes, which created the benchmark Dow average, said on Thursday it is “closely” watching the Citi situation's impact on the future of the widely-watched 30-stock index. Last year AIG was removed from the blue-chip index and replaced with Kraft (KFT) after the government stepped in to rescue the insurer.

The fact that many blue-chip names have neared or broken $1 per share has sparked a Wall Street-wide guessing game about stocks could replace the penny stocks. Sparks predicted Dow Jones, which like FOX Business is owned by News Corp. (NWS), could include a tech stock like Apple (AAPL) to better "reflect the change in the industrial make-up of the economy" away from financials. 

For Citigroup, it’s been a remarkable fall as the bank was once the largest U.S. financial institution by market capitalization, touching an all-time high of $286.5 billion in Feb. 2001. Eight years and $75 billion in government rescue funds later, and Citigroup’s market cap now stands at just $5.6 billion, less than that of Best Buy (BBY) or Sprint Nextel (S).

“It just reminds everybody that these things are clearly just pieces of paper and at the end of the day you need to be careful and you need to do your homework,” said Weisberg. “How you would have prepared for the demise in the equities I do not know, except the signs were there.”

Citigroup is hardly alone as the market value of many other blue-chips have disappeared, slamming millions of Americans’ 401(k)s in the process. For example, insurer AIG, which has been approved for nearly $200 billion in bailout funds, has been trading for pennies for much of 2009.

Bank of America, which has received two separate injections from the U.S., is not far off, trading as low as $2.53 per share earlier this year.

It’s not just the financials either as General Motors, which was once the world’s largest auto maker, neared $1 per share and became the only Dow component with a sub-$1 billion market cap on Friday. GM and Chrysler LLC have pleaded for billions in additional bailout dollars from the government to stave off collapse amid the worst auto market in nearly three decades.