TORONTO - North American markets tumbled Tuesday as financial stocks sold off on the banking sector's latest woes, while the Toronto market was also hit by sharp slides in energy stocks amid lower oil prices.
"Until we gain confidence in large financial institutions, it's going to be a choppy market," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.
U.S. President Barack Obama's inauguration did nothing to calm concerns about worsening economic conditions.
On Tuesday, New York's Dow Jones industrial average dropped 332.13 points to 7,949.09. Toronto's S&P/TSX composite index tumbled 336.55 points to 8,504.93.
The Bank of Canada said Tuesday it expects the economy will continue to shrink until mid-year and cut its key interest rate by another half a point to one per cent -- the lowest ever -- to provide stimulus.
The Canadian central bank said "the economy is projected to contract through mid-2009, with real GDP dropping by 1.2 per cent this year on an annual average basis."
However, there was some good news in the statement, as the bank said next year's GDP growth rate should rise to 3.8 per cent.
As if to underscore the central bank's comments on the economy, Statistics Canada announced that manufacturing sales decreased for a fourth consecutive month in November. The agency said that sales fell 6.4 per cent to $48.4 billion, the lowest level since December 2004.
The Canadian dollar lost 0.81 to 78.89 cents US.
The TSX Venture Exchange moved down 16.27 points to 856.68.
The Nasdaq composite index was off 88.47 points to 1,440.86 while the S&P 500 slipped 44.9 points to 805.22 as Obama said that "our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age."
Some investors were hoping for an "Obama bounce" on the historic inauguration of the 44th president Tuesday. However, market historians pointed out that New York's Dow Jones industrials have fallen on 72 per cent of past inauguration days.
Markets are still feeling the aftershocks of Monday's announcement from the Royal Bank of Scotland that it will likely post a US$41.3-billion loss for 2008 and that the British government will be bailing out banks for the second time in three months.
Investors fear the second government bailout might be a move to fully nationalize some British banks.
And State Street Corp., which had been performing better than most financial services firms, reported a 71 per cent drop in fourth-quarter profit as it was forced to take billions of dollars in writedowns on its commercial paper program and investment portfolio. Its shares plunged $21.46 or 59 per cent to US$14.89.
"If you don't feel the financial system is intact, you don't buy stocks," said Nakamoto.
"It has nothing to do with oil prices, metal prices and so on -- it has everything to do with people's confidence in the financial institutions and stability of the financial markets."
The TSX financial sector was down 5.8 per cent with Royal Bank (TSX:RY) falling $1.76 to C$30.84 while Manulife Financial (TSX:MFC) fell $2.10 to $20.11.
Online brokerage TD Ameritrade (Nasdaq:AMTD) said Tuesday its first-quarter profit dropped 23 per cent and cut its outlook for the year because of America's economic problems. Shares in TD Bank (TSX:TD), which has a 40 per cent stake in the company, dropped $2.80 to C$39.42.
Other U.S. bank stocks taking big hits included Citigroup, down 20 per cent to US$2.80 and Bank of America ran down 29 per cent to US$5.10.
The energy sector backed off 6.8 per cent even as oil prices switched direction after falling sharply in the morning on the continued gloomy outlook for global energy demand.
The February crude contract on the New York Mercantile Exchange, which expired at the end of the session, gained $2.23 to US$38.74 while the March contract declined $1.77 to US$40.84.
Petro-Canada (TSX:PCA) gave back $2.54 to C$27.11 and EnCana Corp. (TSX:ECA) skidded $3.05 to $52.67.
Suncor Energy Inc. (TSX:SU) said Tuesday its 2008 earnings fell to $2.1 billion or $2.29 a share, down from $2.98 billion or $3.23 a share reported the previous year.
Challenges escalated in the fiscal fourth quarter of 2008 as the precipitous drop in commodity prices dragged Suncor into the red. The company reported a quarterly loss of $215 million or 24 cents a share, reversing year-earlier profits of $1 billion or $1.13 a share. Suncor shares fell $4.16 to $22.10.
The base metals sector lost 4.8 per cent with Teck Cominco Ltd. (TSX:TCK.B) down 23 cents to $5.59 and Ivanhoe Mines (TSX:IVN) shed 31 cents to $3.51.
Elsewhere in the sector, Rio Tinto Alcan (NYSE:RTP) said it is permanently closing its Beauharnois smelter in Quebec and curtailing production at the Vaudreuil alumina refinery. The moves are part of a new six per cent reduction in aluminum production, which will cost 1,100 jobs worldwide at the international metal giant.
The gold sector rose 3.3 per cent as the February bullion contract in New York rose $15.30 to US$855.20 an ounce. Goldcorp Inc. (TSX:G) gained $1.26 to C$33.80.
Shares in Research In Motion (TSX:RIM) were well off early highs, losing 75 cents to $63 after Certicom Corp. (TSX:CIC) obtained a court order preventing the maker of the BlackBerry, Curve and Pearl smartphones from pursuing its current hostile bid. Certicom shares fell 10 cents to $1.70.
Elsewhere, Italian automaker Fiat signed a non-binding agreement to form an alliance with struggling U.S. automaker Chrysler to share technologies and vehicle platforms. Fiat will acquire a 35 per cent stake in Chrysler as part of the deal. Fiat will not invest cash, but provide access to products and platforms.
Shares in auto parts giant Maga International (TSX:MG.A) fell $2.15 to $36.63.
Bell Canada says it wants to cut its workforce by another 1,500 jobs through a retirement incentive to qualifying unionized employees, the latest move by Canada's largest telecom operator to streamline and cut operating costs. Shares in parent BCE Inc. (TSX:BCE) were off 19 cents to $24.86.
