The close: Off the cliff

RTGAM






North American stock markets turned volatile late Monday afternoon, with Canada's benchmark index in particular shedding about 400 points in the final 45 minutes of trading - continuing a mysterious trend toward late-afternoon selloffs.


The S&P/TSX composite index closed at 8537.71, down 756.38 points, or 8.1 per cent. In percentage terms, that's the steepest of the recent one-day downturns. The big loss puts the index at a new four-year low, along with the fast-falling Canadian dollar.


Financials and energy stocks were particularly hard hit. Manulife Financial Corp. fell 15.3 per cent, Royal Bank of Canada fell 8.6 per cent, Canadian Natural Resources Ltd. fell 10.5 per cent and EnCana Corp. fell 8.5 per cent.


In the United States, the Dow Jones industrial average closed at 8175.77, down 203.18 points, or 2.4 per cent - tumbling 200 points in the final minutes and taking it to a new multi-year low as well. The broader S&P 500 closed at 848.92, down 27.85 points, or 3.2 per cent.


Boeing Co. fell 6.4 per cent, Walt Disney Co. fell 5.5 per cent, Microsoft Corp. fell 3.6 per cent, Citigroup Inc. fell 3.4 per cent and Bank of America Corp. fell 2.6 per cent.


Steep declines had been telegraphed before the start of trading, when markets in Asia and Europe recorded deep losses and investors were nervous that the selling would hit North America when markets opened. In Hong Kong, stocks fell 12.7 per cent overnight.


However, North American indexes - particularly in the United States - opened with relatively minor losses and some indexes were able to claw their way into positive territory later in the day. At one point, the Dow was up about 200 points.


Exactly what caused the sudden abandonment of stocks - Canadian financials and energy stocks, in particular - is a matter of debate. However, the usual suspects are mutual funds and loosely regulated hedge funds, which have a tendency to dump holdings toward the end of the day to meet redemptions. With few buyers willing to take the other side of the trade, downturns can easily turn into routs.