The Toronto stock market tumbled more than two per cent Wednesday, shedding all its year-to-date gains as worries that the American economy is faltering triggered a sell-off across all sectors.
The S&P/TSX composite index plunged 287.28 points to 12,394.82 in the wake of a report that had traders reconsidering their expectations for March job gains and other data pointing to slower expansion in the American non-manufacturing sector.
The Canadian dollar rose 0.1 of a cent to 98.63 cents US.
U.S. indexes were also lower as the Dow Jones industrials gave back 112.47 points to 14,549.54, the Nasdaq was down 41.46 points at 3,213.41 and the S&P 500 index slipped 17.52 points to 1,552.73.
Two days before the release of the U.S. government’s jobs data for March, Automatic Data Processing reported that the American private sector created 158,000 jobs last month, which was below the 215,000 reading that markets had expected. Before the release of the ADP data, economists had expected the government’s report would show a total of 190,000 jobs were cranked out.
Elsewhere on the economic calendar, the U.S. Institute for Supply Management’s non-manufacturing index for March came in at 54.4, down from the February reading of 56 and below forecasts for a 55.5 reading.
That report came on the heels of another ISM report earlier in the week showing expansion in the manufacturing sector also faltering.
“The survey was the third disappointing number for the U.S. economy in March . . . joining earlier readings on consumer confidence and the ISM factory index,” said CIBC World Markets senior economist Avery Shenfeld.
“They hint that a strong Q1 in the U.S. economy may have seen a loss of momentum in its final month, boding less well for Q2.”
Analysts said geopolitical concerns also contributed to the steep market declines as Washington said a missile defence system was being sent to the Pacific island of Guam amid continued threats from North Korea.
The move came a day after the North said it would restart its long-shuttered plutonium reactor and a uranium enrichment plant. Both could produce fuel for nuclear weapons that North Korea is developing.
Defence secretary Chuck Hagel said North Korea’s rhetoric presents a real, clear danger and threat to the U.S. and its allies.
The negative showing on markets comes at a time when the Dow industrials has surged more than 10 per cent on what had been a steady stream of positive economic data and easing by the Federal Reserve.
Analysts view the decline as a blip.
“Given that the markets have run up, (traders) will look for a reason to pull back and that’s healthy,” said Kash Pashootan, portfolio manager at Raymond James in Ottawa.
“I don’t think there is any evidence at this time that any of the economic indicators that have come forth that have been soft are enough to deter the rally that’s going to continue to take place.”
It’s a different story on the resource heavy TSX, where the losses of the session erased all gains, modest as they were, for the year.
Minerals have been a big drag on the Toronto market with the base metals sector down 16.3 per cent so far this year, reflecting a slow global economic recovery and metal prices, including copper, that have sunk to eight month lows.
The gold sector has declined even more, down 20 per cent as precious metal miners deal with prices that haven’t kept pace with increasing operating costs.
“As the U.S. market is doing well, money is flowing out of other asset classes, primarily gold, because no one wants to miss out on a good party,” Pashootan said.
The third major pillar of the TSX, financials, is up a slight four per cent year to date and has its own problems.
“If you look at how the banks have done over the last three or four years, they had a lot of momentum and the earnings growth that the market has come to expect will be difficult to repeat in the next few years,” added Pashootan.
“You are really seeing the slowing loan growth as well and most of those are consumer loans, so the consumer has slowed — they have reached their maximum capacity.”
The TSX gold sector dropped almost five per cent as June bullion on the New York Mercantile Exchange was down $22.40 at US$1,553.50 an ounce on top of a $25 slide Tuesday. Barrick Gold Corp. (TSX:ABX) lost $1.33 to C$27.38 while Goldcorp Inc. (TSX:G) faded $1.35 to $31.47.
May copper shed five cents to a fresh eight-month low of US$3.33 a pound and the metals and mining sector was down 3.87 per cent. Teck Resources (TSX:TCK.B) gave back 79 cents to C$27.03 and First Quantum Minerals (TSX:FM) gave back 95 cents to $17.73.
The energy sector fell 3.35 per cent as the May crude contract declined $1.07 to US$96.12 a barrel. Cenovus Energy (TSX:CVE) declined $1.04 to C$30.86 and Canadian Natural Resources (TSX:CNQ) fell $1.13 to $31.47.
The financial sector shed 1.77 per cent with Manulife Financial (TSX:MFC) down 51 cents to $14.55.
TD Bank Group (TSX:TD) said its long-time president and chief executive, Ed Clark, will retire on Nov. 1, 2014. Clark’s successor will be Bharat Masrani, 56, who is currently head of TD’s U.S. personal and commercial banking group. TD shares slid $1.43 to $83.02.