The TSX posted another triple-digit loss Wednesday, with investors stepping away from equities as commodity prices slid and U.S. recession fears grew.

At the close, the S&P/TSX composite index was down 242 points at 13,075. At its worst level of the day — shortly before 11 a.m. ET — it was down 327 points.

S&P/TSX composite index 3-month chart

The benchmark index of the TSX fell 381 points on Tuesday, bringing its two-day loss to 623 points — a 4.5 per cent slide.

TD Bank chief economist Don Drummond said the two-day selloff began with the release Tuesday of a report that said December retail sales dropped in the United States.

"[That was] so clearly a signal that the housing woes have spread," he said. "We've known they've spread already to financial institutions but now we know with at least one month's data that they've spread to consumption."

Every sector on the TSX, with the exception of information technology, closed in negative territory.

The golds, energy, materials, and metals and mining groups took the biggest hits.

Commodity stocks tumbled on fears that if there's a recession in the U.S., the demand for commodities would fall.

David Wyss, an economist at Standard & Poor's, says the Toronto market's heavy concentration in commodities and financials have been responsible for the big drops recently, as those two sectors go through rough times.

"Resource companies are in trouble if U.S. demand slows and of course people are concerned that the financial companies are in trouble if the writeoffs become worse," he told CBC News.

Energy stocks were knocked back on Wednesday by dropping oil prices. Crude oil futures fell below $90 US a barrel for the first time this year after U.S. inventory figures showed bigger-than-expected growth in supplies.

They eventually recovered some of that loss to close at $90.84 US, down $1.06. But the heavily weighted energy sub-index slid by three per cent.

The gold sub-index was down 3.8 per cent as bullion futures tumbled by more than $18 US an ounce to $883.80 US. Gold was down more than $25 US earlier in the trading day.

Dow slides

The Dow Jones industrial average slid 35 points to end the day at 12,466, following a 277-point drop on Tuesday. The Dow had been down more than 100 points in mid-morning trading. 

U.S. markets were initially hurt by a smaller-than-expected profit report from investment bank JP Morgan and a disappointing sales forecast from chip giant Intel. Intel shares tumbled $2.81 to $19.88 US.

Investors were also rattled by the latest U.S. inflation numbers that showed the cost of living rose by 4.1 per cent in 2007 — the highest rate since 1990.

The report raised the spectre of stagflation — high inflation combined with stagnant growth.  

TD's Drummond said it's only a matter of time until stock markets turn around, because they're forward looking.

"Long before the economy hits bottom, they will recover," he said. "We think that the markets will be up — certainly before the end of 2008."

While many market watchers share that sentiment, some don't. Merrill Lynch Canada economist David Watt is calling for the TSX to fall four per cent in 2008.

That would actually represent a rise from current levels. Less than three weeks into the year, the TSX is off 5.5 per cent.