The Toronto stock market sold off Wednesday after U.S. president Barack Obama again insisted that higher tax payments will have to be part of any deal to save the U.S. economy from going over the so-called fiscal cliff at the end of the year.
That dimmed hopes for a quick resolution of the crisis since those higher taxes are strongly opposed by congressional Republicans.
The S&P/TSX composite index dropped 204.87 points 11,929.79, leaving the main index down about 25 points below where it started the year. The TSX Venture Exchange fell 28.20 points to 1,258.69.
The Canadian dollar lost US0.19¢ to US99.62¢.
U.S. indexes also tumbled with losses accelerating after Obama's afternoon news conference.
"The Street was looking for him to say some magic buzzwords about avoiding the fiscal cliff, about co-operation," said Sal Ar-nuk, of Themis trading, a brokerage firm in Chatham, New Jersey.
Instead his comments were "very consistent with some unyielding positions he's had over the years."
The Dow Jones industrials plunged 185.23 points to 12,570.95, the Nasdaq dropped 37.08 points to 2,846.81 while the S&P 500 index backed off 19.04 points to 1,355.49.
Stock markets have registered a series of losses over the last week after the results of the U.S. election essentially left the political landscape unchanged - and amid heightened pessimism that lawmakers can come together to sort a compromise to avoid the so-called fiscal cliff at the start of the year.
The cliff scenario refers to a series of tax cuts from the Bush-era due to expire at the first of the year. This would raise tax bills for almost all Americans. As well, huge spending cuts are automatically set to take effect, which would take a huge chunk out of U.S. gross domestic product and likely push the economy back into recession, taking other countries' economies with it.
Such a scenario is bad news for a resource-heavy market like Toronto's as slowing economies in other countries will slash demand for oil and metals and pressure mining and energy stocks.
Losses have been especially severe on U.S. markets this past week, with selling across all sectors because investors are worried they will be paying substantially higher dividend and capital gains taxes in the new year.
"That's what's driving a lot of it these days - taxes are bound to go up," said John Tsagarelis, managing director and senior portfolio manager at Manulife Asset Management. "It may not be the full effect that is the doomsday scenario, but at the margin, I think taxes will go up."
