The S&P/TSX composite index dropped 134.47 points to 12,744.11 as traders wondered if an impressive rally has run out of steam despite a strong reading on U.S. retail sales.
Some analysts suggested that the sharp drop also reflected changing market sentiment where investors are moving out of commodity based markets like the TSX in favour of more broad based indexes like those in the U.S.
"Money flows are showing a continuation of flows into the U.S. asset classes and not necessarily commodity driven asset classes," said Sid Mokhtari, a market technician at CIBC World Markets.
The Canadian dollar was down 0.12 of a cent to 97.34 cents US.
New York indexes registered minor gains and the Dow industrials registered a seventh, straight record high close after the U.S. Commerce Department reported that February retail sales rose by 1.1 per cent. It was the fastest pace in five months and much better than the 0.5 per cent rise that economists had expected.
The Dow Jones industrials rose 5.22 points to 14,455.28. The Nasdaq was up 2.8 points to 3,245.12 while the S&P 500 index edged up 2.04 points to 1,554.52.
The solid increase in retail sales is encouraging because it shows that Americans kept spending despite a payroll tax increase that has lowered take-home pay this year for most workers.
U.S. markets have been on a tear since the start of 2013 amid a positive run of fourth-quarter earnings news and data showing an improving housing sector and job gains.
"One thing to add is we have seen earnings keep up with the market so although the markets have moved up, the valuation has not become stretched," said Jeff Bradacs, portfolio manager at Manulife Asset Management.
"And I think that is one area where investors see the market goes up a lot and think it's getting more expensive but we’ve actually seen it kind of keep in line with earnings growth, which has been positive in the U.S."
The Dow industrials have jumped about 10 per cent year to date. Buying enthusiasm has been muted in Canada and with Wednesday's loss, the TSX is still up about 2.5 per cent.
Bradacs points out that the TSX is a different market than New York as it is heavily weighted by energy and gold companies.
"And with golds, if you’re bullish on the economies out there, it’s tough to be bullish on gold unless you believe... (in) very stellar growth that is going to lead to higher inflation, which is difficult at this stage given the slack in the economy and high unemployment," he said.
"The other area is energy that's holding back the TSX and that’s really just due to pricing differentials in Canada and that’s really holding back our energy space from moving forward."
The gold sector led decliners, down 2.43 per cent while May bullion declined $3.30 to US$1,588.40 an ounce. Goldcorp Inc. (TSX:G) fell 89 cents to C$33.07.
The energy sector gave back 1.21 per cent as the April crude contract on the New York Mercantile Exchange slipped two cents to US$92.52 a barrel. Cenovus Energy (TSX:CVE) lost 57 cents to C$32.50.
The telecom sector fell 2.06 per cent as BCE Inc. (TSX:BCE) lost 81 cents to $46.62.
The base metals sector was down 0.67 per cent with May copper three cents lower at US$3.52 a pound. Teck Resources (TSX:TCK.B) declined $1.29 to C$30.33.
The financial sector was also a major weight, down almost one per cent as Power Financial Corp. (TSX:PWF) saw fourth-quarter profit drop from a year earlier, falling below analyst estimates for the Montreal-based insurance and wealth management company. The parent of Great-West Lifeco. (TSX:GWO) and IGM Financial (TSX:IGM) said its net income was $278 million or 39 cents per share, 11 cents below expectations. Operating earnings were down to $406 million or 57 cents per share, missing analysts estimates of 58 cents a share.
Power Financial stock fell 77 cents to $28.75.
The TSX finished off the worst levels of the session thanks to a strong showng by BlackBerry. Its shares ran up $1.21 or 8.16 per cent to $16.04 after the company announced it has sold 1 million of its new smartphones to a mystery buyer.
The Waterloo, Ont.-based company said an "established partner" made the purchase, though it cited confidentiality reasons for not revealing the identity. There are high hopes that the new Z10 smartphone will make a big splash when it goes on sale in the U.S. market March 22.
In other corporate news, Air Canada (TSX:AC.B) was ahead eight cents to $2.65 after the federal government said Tuesday that it would give Air Canada more time to eliminate the $4.2-billion deficit in its pension plan. But it imposed strict rules on the airline that limit executive pay and prevent it from paying dividends.
The TSX Venture Exchange slipped 3.79 points to 1,115.36.